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COLLEGE  AND  UNIVERSITY  FINANCE 


COLLEGE  AND  UNIVERSITY 
^  FINANCE 


By 
TREVOR  ARNETT 


'% 


NEW  YORK 

GENERAL  EDUCATION  BOARD 

61  BROADWAY 


Copyright  1922  By 
The  General  Edccatiok  Board 


Library 


PREFACE 

The  general  purpose  in  writing  this  book  has  been  to 
lighten  the  tasks  of  college  administrators  and  to  help  make 
their  work  more  satisfactory,  both  to  themselves  and  to  all 
those  who  have  at  heart  the  welfare  of  American  colleges. 
The  particular  purpose  in  writing  it,  in  response  to  numer- 
ous requests,  has  been  to  put  into  book  form  a  statement  of 
the  principles  underlying  college  accounting  and  the  use 
and  care  of  trust  funds,  and  to  describe  a  complete,  yet 
simple,  system  of  college  accounts  which  has  been  tried  and 
found  satisfactory.  It  is  hoped  that  business  officers  will 
find  the  book  a  help  to  them  in  performing  their  duties  more 
inteUigently  and  efficiently,  and  that  presidents,  as  well  as 
trustees,  will  be  assisted  in  discharging  their  responsibifities. 
No  attempt  has  been  made  to  discuss  educational  problems, 
the  text  being  limited  to  a  discussion  of  business  and  financial 
problems  only. 

Chapters  i  to  vi  are  devoted  to  a  discussion  of  the  prin- 
ciples underlying  college  organization  and  management  and 
the  problems  of  financial  policy  peculiar  to  the  endowed 
college,  particular  emphasis  being  placed  upon  the  principles 
which  must  be  observed  in  accounting  for  trust  funds  and  in 
maintaining  them  inviolate. 

The  remaining  chapters  deal  with  the  principles,  methods, 
and  plans  to  be  followed  in  recording,  accounting,  and  report- 
ing the  financial  transactions  of  colleges  from  the  point  of 
view  of  good  practice,  and  are  designed  to  help  officials  and 
employees  who  carry  these  responsibifities.     In  order  to 


vi  PREFACE 

render  this  portion  of  the  book  more  eflFective  an  annual 
financial  report  of  a  supposititious  college  is  included  and 
explained  at  some  length. 

In  addition  to  requests  which  have  been  received  for 
information  concerning  a  proper  financial  system,  the  officers 
of  the  General  Education  Board  have  been  frequently 
asked  to  furnish  college  trustees  with  a  suitable  set  of  by-laws. 
To  supply  this  demand  a  set  of  by-laws  containing  pro- 
visions for  the  conduct  of  an  endowed  college  has  been 
drafted  and  included. 

Mention  is  made  of  the  books  of  account  and  records 
needed,  but  detailed  forms  and  headings  have  been  stu- 
diously avoided.  The  principles  and  theory  of  college 
accoimting,  however,  have  been  emphasized  with  the  hope 
that  officials  in  charge  of  this  work  will  be  stimulated  to 
arrive  at  solutions  best  adapted  to  their  own  peculiar 
problems. 

I  wish  to  record  my  sincere  appreciation  of  the  many 

helpful  suggestions  which  have  been  made  by  my  associates, 

and  especially  to  acknowledge  the  aid  given  by  Mr.  N.  C. 

PHmpton,  Assistant  Auditor  of  the  University  of  Chicago, 

and  Dr.  J.  Spencer  Dickerson,  Secretary  of  the  Board  of 

Trustees  of  the  University  of  Chicago,  my  colleagues  for 

many  years,  and  by  Dr.  Wallace  Buttrick,  Dr.  Abraham 

Flexner,  and  Mr.  H.  J.  Thorkelson,  my  associates  in  the 

General  Education  Board. 

Trevor  Arnbtt 
New  York 
January  31,  1922 


( 


TABLE  OF  CONTENTS 

CHAPTER  PAGE 

I.  Origin  and  Support  op  Colleges  and  Univer- 
sities    1-9 

II.  Receipts 10-17 

Sources 10 

Student  Fees 10-13 

Advance  Payment  of  Fees 13-14 

Income  on  Endowment 14-15    '^ 

Gifts 1&-17    ^ 

III.  Disbursements 18-23 

Expenses  of  Operation 19-21 

Disbursements  of  Auxiliary  Departments     .       .  21-22 
Disbursements   for   Dormitories,    Dining-Halls, 

Bookstores,  etc 22 

Expenditures  Incurred  in  Raising  Funds      .       .  22-23 

IV.  Endowment  .              , 24-53 

Definition 24     t-- 

Improper  Use  of  the  Term  "Endowment"  .       .  24-26     ^ 

Source  of  Endowment 2&-27    i^ 

Unrestricted  and  Restricted  Endowment     .  27-28    < 

Gifts  of  Property  and  Securities  to  Be  Entered  at 

Actual  Value 29-30     \^ 

Book  Value  of  Endowment  Assets  Should  Not  Be 

Changed  to  Record  Estimated  Values  30-31 

■»-   Principles  of  Investment 32  — *" 

—"■"*-     Suitable  Kinds  of  Investments       ....  32-34  „*-«< 

^'"  '— »     Diversification  of  Investments       ....  34-35  ,.«rr 
Investments  Purchased  Should  Be  Entered  on  the 

Books  at  Cost 35-37 

Funds  Invested  Separately  or  as  a  Whole    .  37-39 

vii 


viii  CONTENTS 

CBAPTEK  PAGE 

Constant  Care  Required 39-41 

Reports  to   Trustees  on   Condition   of  Secur- 
ities      41-42 

Endowment  Funds  Should  Not  Be  Loaned  to 

Trustees  and  Officers 42-43 

Undesirability  of  Investing  Endowment  in  College 

Buildings  and  Land 43-46 

Hypothecation  of  Endowment  Investments  46-47 

Floating  Debt 47-49 

Use  of  Endowment  Cash  for  Current  Expenses  .  49-50 

Funds  Subject  to  Annuity 50-51 

Treatment  of  Pledges 51 

Procediu-e  to  Be  Observed  in  Making  Invest- 
ments        51-52 

Custody  of  Securities 52-53 

V.  Physical  Plant 54-57 

Definition 54 

Plant  to  Be  Carried  at  Cost 55-56 

Insurable  Value 56 

Depreciation 56-57 

VI.  Accounting 58-95 

Accounting  for  Funds 58-60 

Record  of  Funds 60-61 

Funds  for  Special  Purposes 61-63 

Accounting  for  Plant '  63-64 

Accounting  for  Buildings  in  Course  of  Construc- 
tion           64r-66 

Accounting  for  Current  Operations       .       .       .  66-67 

The  Budget 67-89 

Budget  Income 68-70 

How  Estimates  of  Income  Should  Be  Made  70 

Student  Fees 70 

Income  from  Endowments 70-73 

Estimated  Income  from  Gifts         ....  73-74 

Estimates  of  Income  from  Miscellaneous  Sources  74-75 


CONTENTS  iz 

CHAPTER  PACK 

Compaxison  of  Estimated  Income  with  Income 

Received  Previously 75 

Budget  Appropriations 75-80 

Budget  Estimates  for  the  Year — Summary  80-83 

Method  of  Budget  Accounting  and  Control  83-85 

Budget  Revision 85-88 

Closing  the  Budget 88-89 

Accounting  for  Auxiliary  Departments  .  89-90 
Accoimting  for  Dining-Halls,  Dormitories,  etc.  .  90-91 
Accoimting  for  Simdry  Receipts  and  Disburse- 
ments of  a  General  Nature  ....  91-92 
Balancing  and  Closing  the  Ledgers  .  92-93 
Purchasing 93-95 

VII.  Account  Books  and  Records 96-104 

Cash  Books 97 

Ledgers 97-98 

Voucher  Register 98-99 

Pay-Roll  Register 99 

Student  Accounts 99-101 

Loose-Leaf  and  Bound  Books        ....  101 

Statistical  Records 102-104 

VIII.  Financial  Reports 105-118 

Annual 105-115 

Contents  of  Annual  Reports 106-115 

I.  Survey  of  Results 107 

II.  The  Balance  Sheet 107-110 

III.  Current  Operations 110-112 

rV.  Gifts 112-113 

V.  Explanatory  Statements  and  Statistics     .  113-114 

For  Trustees  and  Officers 115-116 

Statistical  Reports 116-117 

Trust  Fund  Reports 117-118 

IX.  Annual  Report  <  f  the  Treasurer       .  .  119-170 

Surplus  and  Increase  in  Assets       ....   119-123 
Current  Oi)erations — College  of  Liberal  Arts       .  123-124 


CX)NTENTS 

PAGE 

Self-supporting  Departments 124r-125 

Building  Additions  and  New  Plans       .       .       .  125-126 

Gifts 126 

Auditor's  Report  of  Examination  ....  126 

Certificate  of  Auditor 127 

Table  I.    Balance  Sheet 128-129 

Table  II.    Surplus  and  Deficit  Account,  1920-21  130 
Table  III.    College    of    Liberal    Arts — Income 

and  Expense 131-134 

Table  IV.    Analysis  of  Income  and  Expense  of 

College  of  Liberal  Arts 135 

Table  V.    Dormitories 136 

Table  VI.    Dining-Halls 137 

Table  VII.    College  Bookstore      ....  138 

Table  VEIL    School  of  Music        ....  139 
Table  IX.    Heat,    Light,    Power,    and    Water 

Account 140 

Table  X.    Gifts  Paid  In  during  the  Fiscal  Year 

Ending  June  30,  1921 141-143 

Schedule  I.    Investment  of  Endowment  Funds  .  144r-147 
Schedule  II.    Investment  of  Annuity  Funds      .•  148 
Schedule  III.    Buildings,  Grounds,  and  Equip- 
ment         149-150 

Schedule  IV.    Temporary  Investments  of  Build- 
ing and  Equipment  Fimds 151 

Schedule  V.    Endowment  Funds  ....  152-154 

Schedule  VI.    Annuities 155-156 

Schedule  VII.    Building  and  Equipment  Funds  157 
Schedule  VTII.    Special  Funds  for  Designated 

Purposes 158 

Schedule  IX.    General    Fimds    for    Designated 

Purposes 159-161 

Schedule  X.    Reserves 162 

Schedule  XI.    Operation   and   Maintenance   of 

Physical  Plant,  College  of  Liberal  Arts  .  163 

Notes  on  Tables  and  Schedules  in  Annual  Report  164-170 


CX)NTENTS  XI 

CHAPTER  PAGE 

X.  College  Organization 171-193 

The  Charter 171-172 

The  Board  of  Trustees 172-173 

The  By-Laws 173-175 

Staif  Required  for  Business  Department  of  an 

Endowed  College  of  Moderate  Size  .  .  175 
The  By-Laws  of  Endowed  College,  College  City, 

Illinois 176-193 

Appendix 194r-203 

Index 207-212 


CHAPTER  I 

ORIGIN  AND  SUPPORT  OF  COLLEGES  AND 
UNIVERSITIES 

Colleges  and  universities  of  the  United  States  derive  part 
of  their  support  from  fees  paid  by  students;  the  remainder 
comes  from  gifts,  from  income  on  endowment,  or  from 
taxation,^  While  even  tax-supported  institutions  may 
derive  part  of  their  income  from  endowment,^  generally 
speaking,  college  and  university  income,  aside  from  student 
fees,  comes  so  largely  either  from  endowment  on  the  one 
hand,  or  from  taxes  on  the  other,  that  the  colleges  and 
universities  of  the  United  States  are  usually  divided  into 
two  classes:   first,  the  endowed  institutions;    second,  the 

1  In  Bulletin  No.  34  of  the  1920  Series,  published  by  the  Commissioner  of  Educa- 
tion, the  following  interesting  table  is  given  showing  the  relative  difference  in  the 
proportional  distribution  of  the  receipts  for  colleges,  universitiee,  and  technical  schools 
as  compared  with  private  institutions: 


Pebcentaqbs 

Public 

Private 

Productive  funds 

3.9 
72.9 

0.7 
22.5 

27.7 

Government,  state,  or  city 

3.8 

14.3 

Student  fees  and  other  sources 

54.2 

100.0 

100.0 

*For  example,  the  budf  t  of  the  University  of  California  for  1921—22  is 
$7,692,162,  of  which  $299,233  represents  income  from  endowment,  and  $70,640  dona- 
tions. In  the  budget  of  the  University  of  Virginia  for  1921—22  the  estimated  income  is 
$821,046,  of  which  $93,194  comes  from  endowment  and  $83,331  from  gifts  and 
bequests. 


2  COLLEGE  AND  UNIVERSITY  FINANCE 

/  tax-supported  institutions.  The  preservation  and  increase  of 
endowment  is  so  important  to  the  well-being  of  an  endowed 
college  or  university  that  the  present  volume  is  primarily 
written  to  meet  the  needs  of  those  who  are  engaged  in  manag- 
ing the  financial  affairs  and  developing  such  institutions. 
But,  as  a  matter  of  fact,  aside  from  the  manner  of  obtaining 
the  income,  all  colleges  and  universities  encounter  practically 
the  same  accounting  and  managerial  problems.  Despite  the 
prominence,  therefore,  given  in  this  volume  to  questions 
connected  with  endowment,  it  is  hoped  that  the  book 
may  also  prove  serviceable  to  persons  interested  in  tax- 
supported  institutions. 

Harvard  College  was  the  first  institution  of  higher  learn- 
ing in  this  country,  and  the  reHgious  motive  which  led  to 
its  establishment  continued  for  two  centuries  to  be  a  powerful 
factor  in  the  development  of  higher  education  in  the  United 
States.  Even  now  it  exerts  a  strong  influence.  The 
Puritan  Fathers,  having  "builded  houses,  provided  necessa- 
ries for  their  livelihood,  reared  convenient  places  for  God's 
worship,  and  settled  the  civil  government,"  longed  to 
"advance  learning  and  perpetuate  it  to  posterity,  dreading 
to  leave  an  illiterate  ministry  to  the  churches  when  their 
present  ministers  should  lie  in  the  dust."^  Not  infrequently 
the  earliest  classes  of  what  are  now  strong  and  well-equipped 
colleges  were  held  at  the  minister's  house  or  at  the  meeting 
house,  and  instruction  was  given  in  a  few  subjects  by  the 
minister.  As  the  number  of  students  increased,  special 
quarters  were  obtained.  The  minister  associated  with  him- 
self other  persons  able  to  share  in  the  instruction,  and 
appealed  to  the  members  of  his  particular  denomination  for 
gifts  which  would  enable  him  to  pay  the  expenses  of  the 

I  New  England's  "First  Fruita." 


ORIGIN  AND  SUPPORT  3 

growing  enterprise.  In  course  of  time  generous  benefactors 
gave  funds  to  be  held  in  perpetuity,  the  income  only  to  be 
used  for  the  maintenance  and  development  of  the  institution. 
Only  in  recent  times  have  institutions  been  founded  with 
considerable  gifts  from  a  single  donor  or  group  of  donors. 

Though  Harvard  was  founded  in  1636,  and  a  few  other 
institutions  in  the  seventeenth  and  eighteenth  centuries,  the 
foundation  of  colleges  and  universities  did  not  become  general 
until  the  second  quarter  of  the  nineteenth  century.  One 
other  educational  institution  was  established  in  the  seven- 
teenth century,  twenty-one  in  the  eighteenth,  twenty-four 
in  the  first  quarter,  eighty-five  in  the  second  quarter,  one 
himdred  ninety-five  in  the  third  quarter,  and  one  himdred 
forty-five  in  the  last  quarter  of  the  nineteenth  century  up 
to  and  including  1897. 

Since  1900  the  cost  of  maintaining  the  endowed  college 
has  rapidly  increased.  In  consequence  men  have  in  general 
sought  to  make  financially  secure  colleges  already  in  existence 
rather  than  create  new  ones.  Though  the  colleges  of  Oxford 
and  Cambridge,  the  oldest  universities  in  England,  are  well 
endowed,  their  resources  for  the  most  part  date  back  to  the 
Middle  Ages.  At  the  present  time  in  the  United  States 
more  than  anywhere  else  in  the  world  institutions  of  learning 
are  the  recipients  of  large  simis  ranging  from  single  gifts 
running  into  the  millions,  down  to  relatively  small  amounts 
contributed  by  tho£j  interested  for  one  reason  or  another  in 
the  success  and  development  of  a  given  college  or  university. 
These  gifts  are  sometimes  made  by  individuals,  sometimes 
by  rehgious  groups,  sometimes  gathered  through  efforts  of 
alumni;  not  infrequently  they  come  absolutely  unexpected. 
From  information  gathered  from  pubUcations  of  the  Com- 
missioner of  Education,  during  the  last  three  decades  of  the 


4  COLLEGE  AND  UNIVERSITY  FINANCE 

nineteenth  century,  gifts  and  bequests  to  education  in  the 
United  States  approximated  in  value  $250,000,000;  during 
the  first  decade  of  the  present  century  they  amounted  to 
$216,000,000,  and  for  the  seven  years  of  the  second  decade 
to  $211,000,000.  All  but  a  small  part  of  these  great  amounts 
was  given  for  higher  education. 

Nor  do  these  figures  tell  the  whole  story,  for  since  1918 
practically  all  the  endowed  colleges  and  universities  of  the 
United  States  have  been  vigorously  engaged  in  raising  addi- 
tional sums  for  endowment,  largely  for  the  special  purpose 
of  providing  income  with  which  to  pay  increased  salaries. 
The  rapid  rise  in  the  cost  of  hving  during  the  recent  world- 
war  threw  into  bold  reUef  the  inadequacy  of  the  salaries 
paid  to  college  and  university  teachers.  There  was  for  a  time 
no  inconsiderable  danger  that  the  teaching  profession  would 
be  seriously  damaged.  It  became  necessary  not  only  to 
bring  the  salaries  back  quickly  to  their  purchasing  power 
before  the  war,  but,  ia  justice  to  the  teacher,  to  place 
them  upon  a  higher  level.  Harvard  undertook  a  campaign 
for  $15,000,000,  Princeton  for  $14,000,000,  Cornell  for 
$10,000,000.  Every  possible  effort  was  made  to  interest 
and  inform  the  pubUc  as  to  the  situation.  Mr.  John  D. 
Rockefeller  gave  to  the  General  Education  Board  the  sum  of 
$50,000,000  in  the  hope  that  the  board  would  decide  "to  use 
the  principal  as  well  as  the  income  as  promptly  and  as  largely 
as  may  seem  wise  for  the  purpose  of  co-operating  with  higher 
institutions  of  learning  in  raising  sums  specifically  devoted 
to  the  increase  of  teachers'  salaries."  It  is  probable  that 
this  movement  will  add  another  quarter  of  a  billion  of  dollars 
to  the  endowment  of  American  colleges  and  universities 
within  the  next  five  years. 


ORIGIN  AND  SUPPORT  6 

A  few  concrete  examples  will  illustrate  the  rapid  develop- 
ment which  has  just  been  sketched.  Yale  University,  over 
two  hundred  years  old,  had  in  1900  an  endowment  of 
$4,942,166.  Its  endowment  is  now  $25,677,010,  and  when 
existing  pledges  are  collected  will  be  $31,759,910.  The 
endowment  of  Harvard  University  has  increased  since  1900 
from  $12,614,448  to  $48,546,156.  It  will  possess  over 
$50,000,000  when  its  $15,000,000  fund  has  been  fully  paid 
in.  Brown  University,  with  $1,252,734  in  1900,  now 
has  $5,954,239.  The  endowment  of  Amherst  College  has 
increased  in  the  same  period  from  $1,679,252  to  $4,825,015, 
and  that  of  Smith  CoUege  has  risen  from  $707,786  to 
$4,243,000.  Moreover,  the  funds  of  the  last  three  colleges 
will  be  further  increased  when  the  present  campaigns  are 
completed.  In  the  Middle  West,  the  West,  and  the  South, 
the  same  phenomenon  may  be  observed,  though  the  amounts 
involved  are,  with  one  exception,  smaller.  Grinnell  College 
in  Iowa  had  in  1900,  $597,511  of  endowment;  in  1921  it 
had  $2,477,483,  and  when  it  has  succeeded  in  collecting 
all  outstanding  pledges  it  will  have  $3,021,580.  Carleton 
Collie  in  Minnesota  has  seen  its  endowment  increase  from 
$422,494  to  $1,617,068,  and  will  see  it  increase  to  $3,136,632, 
when  all  outstanding  pledges  are  collected.  The  new 
University  of  Chicago,  founded  in  1890,  had  in  1900  an 
endowment  of  $5,938,450,  and  now  possesses  an  endowment 
of  $31,537,826.  These  large  sums  added  to  endowment 
by  no  means  represent  the  total  increase  in  the  resources  of 
endowed  colleges  and  universities.  There  have  been  corre- 
spondingly large  sums  spent  for  new  buildings  and  equipment. 
In  order  to  provide  for  the  larger  numbers  of  students  now 
seeking  higher  education,  it  is  still  necessary  to  procure 


6  COLLEGE  AND  UNIVERSITY  FINANCE 

additional  resources,  partly  for  buildings  and  equipment, 
partly  for  maintenance. 

To  complete  the  picture  and  to  show  that  the  problems 
of  accounting  and  management  are  not  Umited  to  endowed 
institutions,  a  brief  statement  should  be  made  regarding  the 
resources  of  tax-supported  institutions.  These  institutions, 
some  of  which  were  founded  toward  the  middle  of  the  nine- 
teenth century,  have  had  their  main  development  since  the 
close  of  the  Civil  War.  They  are  found  chiefly  in  the 
western,  the  middle-western,  and  the  southern  states  side  by 
side  with  large  or  rapidly  growing  endowed  institutions, 
deriving  their  support  either  from  the  appropriations  of 
state  legislatures  or  from  a  fixed  state  tax,  and  in  part  from 
federal  ai^,  their  current  annual  budgets  run  in  some  in- 
stances to  upward  of  $5,000,000.  The  annual  budget  for 
1921-22  for  current  expenses  of  the  State  University  of  Illi- 
nois (exclusive  of  new  buildings)  is  $4,658,726;  of  Wisconsin, 
$4,841,965;  of  Minnesota,  $5,886,739;  and  of  Michigan, 
$4,406,429.  It  is  obvious  that  all  these  institutions,  tax- 
supported  and  endowed,  are  large  enterprises,  the  business 
management  of  which  requires  training  and  capacity  of  a 
high  order. 

It  will  be  conceded  that  endowed  colleges  and  univer- 
sities in  the  United  States  have  not  generally  developed  sound 
and  adequate  accounting  systems.  The  reasons  for  this 
unfortunate  condition  are  not  difficult  to  discover.  For 
many  years  these  institutions  lived  a  hand-to-mouth 
existence.  Gifts  and  contributions  were  at  once  swallowed 
up  in  the  payment  of  salaries  or  bills  not  infrequently 
overdue.  A  record  of  cash  receipts  and  disbursements  was 
usually  kept,  and  as  a  rule  little  more.  In  many  cases  the 
president  did  not  fully  appreciate  the  need  of  careful  account- 


ORIGIN  AND  SUPPORT  7 

ing  and  rarely  had  at  his  disposal  funds  with  which  to  pay 
a  competent  bookkeeper.  The  trustees  and  friends  of  the 
college,  though  often  successful  men  of  affairs,  accustomed  in 
their  own  businesses  to  rigid  financial  accounting,  trusted 
completely  the  college  administrators  and  rarely  insisted 
upon  the  adoption  of  strict  business  methods  in  the  manage- 
ment of  college  finance.  When  they  did  imdertake  to 
conduct  the  financial  affairs  of  the  college  in  a  businesslike 
way,  often  the  best  they  could  do  was  to  impose  upon  the 
college  an  accounting  system  which,  though  admirably 
adapted  to  the  needs  of  a  commercial  concern,  was  not  appli- 
cable to  an  educational  institution.  A  college  is  not  a  corpo- 
ration operated  for  financial  profit.  Seldom,  if  ever,  does 
its  income  even  in  this  day  permit  the  accumulation  of  a 
depreciation  reserve  for  replacing  buildings.  In  conse- 
quence, a  commercial  system  of  accounting  which  shows  with 
meticulous  care  accruing  income,  building  depreciation,  etc., 
does  not  fit  the  peculiar  financial  problems  encountered  in 
the  administration  of  an  endowed  institution  dependent 
for  its  support  and  expansion  upon  gifts. 

The  accounting  situation  in  colleges  and  universities  is 
therefore  a  decidedly  mixed  one.  Many  institutions  still 
use  the  primitive  methods  inherited  from  their  days  of 
poverty  and  small  things.  A  smaller  number,  endeavoring 
to  improve  matters,  have  employed  systems  unsuited  to  their 
needs.  Relatively  few  colleges  are  operated  upon  the  budget 
system.  Illogical  classification  and  unsuitable  terminology 
too  often  characterize  the  financial  statements  and  the 
ledger  accounts.  Complete  balance  sheets  are  rare.  Vague 
conceptions  of  the  nature  of  endowment  are  quite  common, 
and  capital  receipts  and  expenditures  are  not  carefully 
distinguished  from  receipts  and  expenditures  for  current 


8  COLLEGE  AND  UNIVERSITY  FINANCE 

purposes.  In  consequence,  the  resources  are  often  impaired, 
and  misleading  statements  are  made  regarding  them. 
Terms  such  as  "resources,"  "assets  and  liabilities,"  "sur- 
plus," which  have  a  definite  meaning,  are  often  incorrectly 
used,  with  the  result  that  even  those  connected  with  these 
institutions  do  not  fully  understand  their  actual  financial 
situation. 

The  whole  problem  is  not  an  altogether  simple  one  to 
solve.  The  modem  college  with  its  rapidly  growing  endow- 
ment, its  largely  increased  investment  in  buildings  and 
equipment,  and  its  more  and  more  compHcated  business 
problems  cannot  be  efficiently  conducted,  unless  its  stafif 
includes  someone  versed  in  sound  business  principles.  The 
officer  in  question  must  understand  how  to  superintend  the 
investment  of  funds,  how  to  account  for  them,  how  to  make 
and  operate  a  budget  which  will  tend  to  keep  expenditures 
within  the  limits  of  income,  how  to  prepare  a  balance  sheet 
which  will  show,  fully  and  clearly,  the  financial  status  of  the 
institution,  and  finally,  he  must  reaUze  that  college  operation 
differs  from  the  operation  of  a  commercial  or  manufacturing 
concern.  The  larger  colleges  have  not  hesitated  to  incur 
the  expense  involved  in  maintaining  an  efficient  financial 
department,  reaUzing  that  it  is  the  wisest  thing  to  do,  but 
as  a  matter  of  fact  it  is  perhaps  even  more  important  that 
the  smaller  college,  with  its  limited  resources,  should  be 
conducted  upon  the  most  efficient  business  basis  possible. 

During  the  last  few  years  the  author  has  carefully 
examined  the  financial  management  and  accounting  of 
several  hundred  American  colleges  and  imiversities.  He  can 
testify  unreservedly  and  emphatically  to  the  fact  that 
practically  without  exception  the  financial  affairs  of  these 
institutions  are  honestly  conducted.    Differences  of  opinion 


ORIGIN  AND  SUPPORT  9 

and  errors  of  judgment  have  been,  of  course,  encountered, 
as  they  are  encountered  in  the  most  carefully  and  compe- 
tently managed  busmess  concerns.  But  not  only  are  the 
administrators  of  the  American  college  honest  men,  but  they 
go  too  far  as  a  rule  in  endeavoring  to  make  a  dollar  do  more 
than  a  dollar's  worth  of  service,  especially  in  the  matter  of 
salaries.  Honesty  of  conduct,  however,  is  not  enough; 
there  must  needs  be  efficiency.  Accounting  methods 
employed  are  often  poorly  adapted  to  academic  uses,  and  in 
their  zeal  to  render  public  service  college  administrators 
have  at  times  involved  their  institutions  in  financial  diffi- 
culties through  attempting  more  than  they  have  the  means 
to  perform.  Having  no  proper  methods  of  accounting  they 
are  not  infrequently  surprised  to  find  their  institutions  in 
serious  financial  difficulty.  Common  defects  of  academic 
financing  and  accounting  may  therefore  be  briefly  summar- 
ized as  follows:  (1)  the  use  of  accounting  systems  unsuited 
to  college  needs,  which  fail  to  portray  the  actual  financial 
status  of  the  institution  and,  (2)  the  absence  of  a  budget 
system  which  tends  to  keep  expenditures  within  the  limits 
of  income. 


(" 


CHAPTER  II 
RECEIPTS 

SOURCES 

The  receipts  of  endowed  colleges  are  of  three  principal 
kinds:  (1)  student  fees,  (2)  income  on  endowment,  (3) 
gifts. 

Some  colleges  also  derive  income  from  the  operation  of 
dormitories,  dining-halls,  bookstores,  and  other  activities, 
but  in  these  cases  the  net  income  only  is  available  for  their 
educational  work.  They  occasionally  receive  income  from 
the  rental  of  college  buildings,  from  the  sale  of  obsolete  and 
not  needed  equipment,  and  from  miscellaneous  sources. 

STUDENT   FEES 

Student  fees  fall  into  four  classes:  (1)  fees  for  tuition; 
(2)  fees  for  laboratory  materials  and  supplies;  (3)  fees  for 
incidental  expenses  and  library  facilities;  (4)  fees  for  break- 
age, damage,  and  loss. 

The  fee  for  tuition  is  primarily  designed  to  cover  what 
is  thought  to  be  the  student's  share  of  the  cost  of  furnishing 
the  education  which  he  receives.  It  is  a  generally  accepted 
principle  that  a  student  should  not  be  required  to  pay  what 
it  costs  the  college  to  provide  his  education,  else  students 
with  slender  resources  may  be  deprived  of  the  advantages  of 
college  training.  Higher  education  should  be  conducted  on 
a  democratic  basis.  No  definite  practice  has  been  followed 
by  colleges  in  determining  the  part  of  the  cost  of  education 

10 


RECEIPTS  11 

which  should  be  bome  by  the  student.  Some  college  admin- 
istrators have  expressed  the  opinion  that  tuition  fees  should 
cover  the  amount  of  salaries  paid  for  instruction,  leaving  the 
administrative  expenses  of  the  college  and  the  cost  of  operat- 
ing and  maintaining  its  physical  plant  to  be  provided  from 
other  sources.  The  amount  paid  by  the  better-endowed 
colleges  for  instruction  approximates  about  one-half  the 
total  expense  incurred  for  strictly  educational  operation.^ 
The  amount  received  from  tuition  fees  rarely  equals  or  even 
approximates  the  sum  paid  for  instruction.  If  the  opinion 
stated  above  were  to  be  adopted  as  a  basis,  the  tuition  fee 
should  equal  the  salaries  paid  to  teachers  divided  by  the 
average  number  of  students  in  attendance.  But  in  fixing  its 
tuition  fee  the  endowed  college  does  not  usually  proceed 
upon  this  principle.  It  takes  other  things  into  consideration. 
The  class  of  student  it  attracts,  their  economic  status,  the 
competition  of  neighboring  colleges  and  of  tax-supported 
institutions,  and  the  desire  to  offer  students  of  its  own 
denomination  the  advantages  of  higher  education  under 
conditions  which  are  beheved  to  be  most  favorable,  are 
more  often  the  deciding  factors. 

In  Bulletin  No.  30,  1918,^  of  the  Department  of  the 
Interior,  Bureau  of  Education,  a  committee  reporting  on  the 
resources  and  standards  of  colleges  of  arts  and  sciences  stated 
that  "  Institutions  should  strive  to  bring  their  endowment  to 
the  point  where  it  will  yield  at  least  half  the  money  needed  for 
annual  expenses."  If  this  goal  were  attained,  the  other  half 
of  the  annual  expense  would  have  to  be  provided  from  other 
sources,  of  which  tuition  fees  are  the  chief.' 

•  "Strictly  educational  op>eration"  includes  administration,  instruction,  and  the 
operation  and  maintenance  of  the  physical  plant  of  the  college.  The  cost  of  the  opera- 
tion and  maintenance  of  dormitories,  dining-halls,  and  special  schools  is  excluded. 

»P.  44.  'Notel.p.  1. 


12  COLLEGE  AND  UNIVERSITY  FINANCE 

Almost  without  exception  college  administrators  prefer 
to  keep  tuition  fees  as  low  as  possible.  The  increasiag  costs 
of  college  operation  since  the  European  war,  however, 
especially  for  the  operation  of  the  physical  plant  and  for  the 
higher  salaries  which  are  being  paid  as  a  result  of  the  efforts 
to  put  the  salaries  of  the  faculty  on  a  basis  commensurate 
with  the  increased  cost  of  hving,  have  impelled  them  to 
increase  fees.  If  a  fixed  relation  should  exist  between  salaries 
and  receipts  from  tuition  the  tuition  fee  should  be  increased 
as  salaries  are  increased.  There  can  be  no  sound  objection 
to  at  least  a  proportionate  increase  in  tuition  fees,  especially 
if  provision  is  made  for  scholarships  and  for  loan  funds  to  care 
for  worthy  students  unable  to  pay  the  higher  rate. 

The  fee  charged  for  laboratory  materials  and  supplies  is 
ordinarily  supposed  to  be  equivalent  to  their  actual  cost, 
including  service,  and  is  levied  to  reimburse  the  college  and 
to  put  the  courses  in  science  requiring  laboratory  work 
financially  on  a  par  with  those  in  the  humanities. 

Colleges  also  often  impose  specific  fees:  a  matriculation 
fee,  paid  at  the  time  of  admission,  which  is  supposed  to  cover 
the  expense  incurred  in  passing  upon  entrance  credits  and 
enrolling  students;  a  graduation  fee,  paid  when  the  student 
receives  his  degree;  a  library  fee  for  the  use  of  the  Ubrary, 
which  is  usually  devoted  to  the  purchase  of  books;  and  an 
incidental  fee  to  help  defray  the  overhead  cost  of  administra- 
tion. There  may  be  also  athletic  fees,  locker  rental  fees, 
and  fees  for  college  concerts. 

Breakage  and  deposit  fees  are  exacted  in  advance  to 
protect  the  college  from  loss  arising  through  loaning  students 
scientific  material  and  keys,  and  from  wilful  damage  to 
property.  Any  portion  of  the  fee  unused  is  refunded  to  the 
student  at  the  end  of  the  term. 


RECEIPTS  13 

Fines  are  imposed  for  failure  to  observe  rules  regarding 
registration,  payment  of  fees,  and  the  return  of  books  and 
materials. 

ADVANCE  PAYMENT  OF  PEES 

Students  should  be  required  to  pay  all  fees  within  the 
first  few  days  of  the  quarter  or  term,  or  to  make  satisfactory 
arrangements  for  their  payment.  This  rule,  announced  by 
most  colleges,  is  more  honored  in  the  breach  than  in  the 
observance.  It  should,  however,  be  followed  strictly,  for  its 
observance  operates  as  much  to  the  advantage  of  the  student 
by  training  him  in  good  business  principles  as  it  benefits 
the  college  by  the  prompt  receipt  of  cash,  by  ehminating 
the  expense  of  collection,  and  by  avoiding  bad  debts.  The 
reason  most  frequently  given  for  not  insisting  upon  prompt 
payment  is  that  it  might  work  a  hardship  on  the  poor  student 
and  might  exclude  him  from  college.  Experience  shows  that 
the  enforcement  of  the  rule  has  not  had  this  effect,  for  almost 
without  exception  a  student  earnestly  desiring  an  education 
will  in  some  way  obtain  the  needed  money. 

The  enforcement  of  the  rule  is  good  poUcy,  for  the  student 
whose  obHgations  are  settled  has  a  more  wholesome  attitude 
toward  his  college  than  one  who  is  in  its  debt.  If  fees  are  not 
collected  promptly  the  student  is  more  hkely  to  be  captious 
and  critical  and  offer  complaints  of  various  kinds  as  excuse  for 
non-payment.  Experience  has  shown  that  it  is  difficult  to 
collect  fees  after  the  term  has  expired .  A  comparison  between 
two  institutions  is  instructive :  One,  a  middle-western  college, 
pursues  a  lenient  poHcy;  it  does  not  insist  upon  prompt  pay- 
ment of  fees,  but  allows  its  students  time  in  which  to  pay  their 
tuition,  board,  rent,  and  athletic  fees,  even  furnishing  several 
of  these  items  at  an  immediate  outlay  of  its  own  cash.     It 


14  COLLEGE  AND  UNIVERSITY  FINANCE 

always  has  a  large  amount  uncollected,  a  considerable  propor- 
tion of  which  is  never  paid.    The  University  of  , 

in  the  same  section,  with  a  very  much  larger  number  of 
needy  students,  makes  its  collections  in  advance,  exceptions 
being  extremely  rare,  and  in  those  cases  it  takes  promissory 
notes  bearing  interest.  No  difficulty  in  enforcing  the  rule 
is  experienced  by  the  latter  institution.  Incidentally,  the 
former  teaches  its  students  to  be  lax,  the  latter  trains  them 
to  be  prompt  and  businesslike. 

INCOME   ON  ENDOWMENT 

Income  on  endowment  forms  a  large  part  of  the  receipts 
of  an  endowed  college.  It  consists  of  interest  on  bonds, 
mortgages,  and  loans,  dividends  on  stocks,  and  rentals  from 
real  estate  in  which  the  endowment  funds  are  invested. 
It  is  perhaps  impossible  to  say  what  particular  proportion 
of  the  total  income  should  come  from  endowment,  but 
attempts  have  been  made  to  prescribe  the  minimum  amount 
of  endowment  which  a  college  should  possess.  For  example, 
the  Indiana  State  Teachers'  Training  Board  places  as  its 
standard  in  this  respect  for  accrediting  institutions  a  pro- 
ductive endowment  beyond  all  indebtedness,  of  $500,000, 
or  in  lieu  of  this  endowment  a  fixed  annual  income,  inde- 
pendent of  all  student  fees,  of  not  less  than  $25,000.  The 
Committee  of  the  Federal  Bureau  of  Education,  to  which 
reference  has  been  made,^  held  that  the  "minimum  endow- 
ment of  a  college  of  arts  and  sciences  should  be  $250,000." 
The  North  Central  Association  of  Schools  and  Colleges 
requires  a  minimum  endowment  of  $200,000  before  classifica- 
tion is  given  an  institution  as  an  accredited  college.  This 
standard  was  established  twenty-five  years  ago  and  is  recog- 

»  p.  11  of  this  chapter. 


I 


RECEIPTS  15 

nized  now  as  wholly  inadequate.  The  Association  of  Colleges 
and  Secondary  Schools  of  the  Southern  States  recently  changed 
its  minimum  to  $500,000.  Colleges,  however,  try  to  get  as 
large  an  endowment  as  possible  so  as  to  make  their  foundation 
secure  and  enable  them  to  operate  without  a  deficit. 

GIFTS 

With  the  exception  of  the  fees  received  from  students, 
an  endowed  college  gets  its  income  either  from  gifts  and 
grants  or  from  funds  previously  donated.  Funds  for  endow- 
ment, for  buildings,  for  purchase  of  land,  for  additional 
equipment  and  books,  and  provision  for  deficits,  are  procured 
through  gifts  and  bequests.  Gifts  fall  naturally  into  two 
classes:  those  which  add  to  the  permanent  assets  of  the 
college,  and  those  which  are  designed  for  current  uses. 
They  may  be  made  by  individuals,  by  groups  of  individuals 
and  classes,  or  by  synods,  conventions,  and  conferences,  but, 
whatever  the  source,  they  should  be  suitably  acknowledged 
and  properly  recorded.  Those  which  add  to  the  permanent 
assets  should  be  recorded  among  the  capital  assets,  and  those 
available  for  current  expenses  should  be  recorded  among 
the  current  receipts. 

Since  endowed  colleges  depend  so  largely  upon  gifts  for 
their  maintenance  and  expansion,  special  efforts  are  made  to 
stimulate  them.  In  addition  to  the  work  which  the  president 
of  the  college  does  in  this  direction,  an  officer  is  often  regu- 
larly employed,  called  a  field  agent  or  financial  secretary. 
He  visits  the  alumni  and  friends  of  the  college,  keeps  them 
informed  of  its  needs,  and  urges  them  to  contribute  to  its 
funds.  He  conducts  a  campaign  of  education  through 
correspondence,  publications,  and  news  items.  Special 
emphasis  is  now  being  placed  upon  annual  contributions  for 


16  COLLEGE  AND  UNIVERSITY  FINANCE 

current  expenses.  Many  alumni  and  friends  who  cannot 
give  a  large  sum  for  endowment  are  often  willing  to  make 
annual  contributions.  However,  uncertainty  as  to  whether 
these  gifts  will  be  continued  year  after  year  makes  it  difficult 
for  the  college  to  determine  its  financial  poUcy  in  advance, 
whereas  if  its  needs  are  met  by  endowment,  it  knows  precisely 
on  what  it  can  count.  On  the  other  hand,  dependence  on 
its  constituency  for  annual  contributions  may  keep  it  in 
closer  touch  with  its  friends  and  may  discover  others,  while 
requests  for  funds  may  add  new  students  as  well  as  income. 
Since  the  college  needs  income  it  resorts  to  that  method 
which  to  the  fullest  extent  and  in  the  most  dependable 
manner  provides  additions  to  its  current  funds. 

Gifts  for  current  purposes  are  most  useful  if  no  particular 
conditions  are  attached  to  them.  Donors  often  make  gifts 
for  prizes,  lectures,  or  other  restricted  purposes,  which, 
however  useful,  do  not  help  the  college  to  meet  its  pressing 
regular  expenses.  Moreover,  it  frequently  happens  that  the 
acceptance  of  a  gift  for  a  special  object  involves  the  college 
in  additional  expense  not  covered  by  the  amount  of  the 
gift.  K  so,  provision  should  be  made  for  meeting  the 
additional  expense  before  accepting  the  gift.  Gifts  for 
recitation  buildings,  Ubraries,  and  laboratories  are  examples. 
The  upkeep  and  maintenance  of  such  buildings  cause  an 
annual  expense  which  often  requires  the  income  of  a  fund 
nearly  equal  to  the  original  gift.  In  this  sense  every  such 
building  is  a  UabiUty  as  well  as  an  asset.  Before  accepting 
a  gift  for  such  a  purpose — at  any  rate  before  taking  any  action 
toward  the  end  contemplated  by  the  gift — the  college  should 
obtain  an  endowment  to  provide  for  the  annual  expenses 
which  its  acceptance  involves,  or  assure  itself  that  in  some 
other  way  it  will  have  ample  income  for  the  piurpose. 


RECEIPTS  17 

Besides  the  efforts  made  by  the  college  authorities  to 
obtain  contributions,  alumni  maintain  organizations  for  the 
same  object.  Classes  and  individuals  are  urged  to  be  con- 
stant in  helping  their  Alma  Mater,  especially  by  making 
annual  contributions.  Alumni  often  reserve  the  right  to 
designate  the  objects  to  which  their  gifts  shall  be  appUed, 
but  these,  like  other  gifts,  are  most  useful  if  absolutely 
unrestricted.  An  excellent  example  of  the  way  in  which 
alumni  may  assist  by  annual  contributions  is  furnished  by 
Yale  University,  whose  graduates  contribute  yearly,  through 
organized  class  effort,  approximately  half  a  million  dollars 
to  the  University  treasury.  This  is  equivalent  to  the 
income  at  5  per  cent  on  an  endowment  of  $10,000,000. 
Nor  does  the  graduate  feel  that  his  annual  subscription, 
large  or  small,  finally  discharges  his  obligation  to  his  Alma 
Mater.  On  the  contrary,  giving  to  his  college,  once  estab- 
Ushed  as  a  habit,  is  likely  to  become  a  passion,  as  well  as 
a  duty.  Large  gifts  and  bequests  ma>  ultimately  result  from 
annual  contributions,  which,  small  at  first,  become  larger 
as  the  graduates  prosper. 


CHAPTER  III 
DISBURSEMENTS 

A  college  expends  its  money  for  two  general  purposes: 
(1)  for  land,  buildings,  and  equipment;  and  (2)  for  expenses 
of  operation. 

Disbursements  for  the  first  purpose  are  sometimes  desig- 
nated as  "Capital  Expenditures"  because  they  are  made 
for  those  material  and  enduring  objects  which  in  a  factory  or 
manufacturing  establishment  would  be  called  "Plant  or  Fixed 
Assets. ' '  Expenditures  for  a  manufacturing  plant  are  made  to 
enable  it  to  function  efficiently  and  yield  the  greatest  financial 
retimi  on  the  capital  invested;  in  like  manner  the  expendi- 
tures for  a  college  plant  should  be  made  to  enable  it  to  function 
adequately  from  the  point  of  view  of  need,  convenience, 
economy  of  operation,  and,  within  reason,  artistic  impres- 
sion.^ Outlays  on  a  college  plant  not  warranted  by  the  tests 
mentioned  above  are  out  of  place  for  they  involve  the  college 
in  unnecessary  expense.  They  are  foreign  to  the  purposes 
for  which  the  college  exists.  Disbursements  for  capital 
purposes  should  be  kept  distinct  from  those  for  expenses  of 

I  "Within  reason"  is  used  advisedly.  It  would  be  most  desirable  educationally  if, 
In  providing  grounds  and  buildings,  colleges  could  pay  as  much  attention  to  beauty  as 
they  pay  to  education.  But  buildings,  grounds,  and  their  upkeep  are  so  expensive 
that,  unless  administrators  are  cautious,  educational  work  may  be  crippled  by  the 

cost  of  constructing  and  maintaining  beautiful  buildings.     College,  in  the 

Middle  South,  now  spends  the  entire  income  of  its  endowment  in  keeping  up  the  new 
plant  which  it  has  lately  built,  and  even  this  will  not  suflSce  when,  with  the  progress 
of  time,  repairs  become  necessary.  There  is  nothing  to  be  said  in  defense  of  the 
tasteless,  not  to  say  ugly,  structures  put  up  by  the  colleges  of  previous  generations, 
but  the  pendulum  may  swing  too  far  in  the  opposite  direction.  A  college  is  a  school; 
it  needs  money  for  salaries,  apparatus,  and  books,  and  artists,  architects,  and  designers 
should  not  be  permitted  to  forget  this  fundamental  fact. 

18 


DISBUBSEMENTS  19 

operation,  and  should  be  provided  for  before  they  are 
incurred. 

Disbursements  for  capital  purposes  are  made  for  new 
buildings,  furniture,  improvements  and  additions  to  buildings, 
new  roads  and  walks,  new  connections  for  heat  and  power 
plant,  tunnels  and  mains.  For  all  such  disbursements,  when 
not  provided  from  current  income,  capital  receipts  must  be 
procured. 

The  question  is  often  asked :  What  distinction  should  be 
made  between  building  equipment  and  equipment  for  the 
scientific  departments  using  the  building?  Difficulty  natu- 
rally arises  at  the  point  where  the  individual  characteristics  of 
each  are  least  prominent.  As  a  rule  "building  equipment" 
refers  to  furniture  and  permanent  equipment  which  must  be 
included  in  the  building,  whatever  department  may  use  it,  and 
"scientific  equipment"  means  that  apparatus  and  equipment 
which  must  be  specially  provided  for  the  needs  of  the 
scientific  departments. 

An  endowed  college  makes  capital  disbursements  for  the 
purchase  of  investments  for  its  endowment  funds,  but  as 
these  purchases  are  usually  made  to  replace  other  invest- 
ments which  have  been  paid  they  do  not  add  to  the  material 
resources  of  the  college.  Their  treatment  and  natiu'e  will 
be  fully  discussed  in  the  chapter  on  endowment  and  need 
no  further  elucidation  here. 

EXPENSES  OF   OPERATION 

The  second  purpose  for  which  expenditures  of  a  college 
are  made  is  for  the  current  operation  of  the  institution. 
These  expenditures  may  be  divided  into  four  classes:  (1) 
those  incurred  in  the  operation  of  the  college  as  such;  (2) 
those  incurred  in  the  operation  of  auxiliary  departments; 


20  COLLEGE  AND  UNIVERSITY  FINANCE 

(3)  those  incurred  in  the  operation  of  dormitories,  dining- 
halls,  bookstores,  etc. ;  (4)  those  incurred  in  raising  funds. 

In  financial  reports  college  officers  do  not  always  separate 
the  expenses  of  operation  in  the  manner  described  above, 
but  include  all  in  one  statement.  In  such  cases  it  is  difl&cult, 
not  to  say  impossible,  to  ascertain  what  is  the  cost  of  college 
operation  for  strictly  educational  purposes,  and  to  compare 
such  cost  with  the  cost  of  another  college  of  the  same  size 
or  character  which  may  not  operate  a  dining-hall  or  book- 
store, or  may  not  have  dormitories.  If  the  classification 
which  is  here  suggested  is  followed,  the  cost  of  the  educa- 
tional work  of  the  college  will  be  at  once  apparent,  and 
this  cost  may  be  readily  compared  with  similar  costs  else- 
where. 

Expenses  of  Class  1  are  those  which  are  common  to  all 
colleges  and  should  be  included  in  the  college  budget.  They 
may  be  termed  "Budget  Expenditures,"  and  fall  into  three 
main  groups:  (1)  administration  and  general,  (2)  operation 
and  maintenance  of  the  physical  plant,  (3)  instruction. 

The  first  group  includes  all  expenses  incurred  in  the 
administration  of  the  college  as  a  whole,  viz.:  the  cost  of 
the  administrative  offices,  and  the  other  general  overhead 
expenses.  The  second  group,  operation  and  maintenance  of 
the  physical  plant,  embraces  those  expenditures  made  to 
maintain  and  preserve  the  college  buildings  and  grounds  and 
make  them  available  for  the  use  of  the  administrative  and 
educational  departments.  The  expenditures  in  this  group 
are  for:  (a)  superintendence;  (6)  janitors;  (c)  heating, 
Ughting,  and  water;  (d)  repairs;  (e)  care  of  groxmds;  (/) 
insurance;  (g)  materials  and  supplies.  The  expense  of 
maintaining  buildings  used  for  dormitories,  dining-haUs,  and 


DISBURSEMENTS  21 

the  like  should  not  be  included  in  this  group  as  a  part  of 
Class  1  because  their  operation  is  not  a  part  of  the 
educational  work  of  the  college.  The  third  group  of  edu- 
cational expenses,  instructional,  embraces  the  cost  of  fur- 
nishing instruction  to  the  students,  the  main  object  of  the 
college.  These  expenditures  are  for  (a)  salaries  of  instruc- 
tional staff,  (6)  equipment  and  books  for  educational  depart- 
ments, (c)  supplies  and  expenses  of  educational  departments. 
The  classification  and  arrangement  of  the  educational  ex- 
penses in  the  budget,  and  the  principles  to  be  followed  in 
estimating  and  operating  the  budget  are  described  in  the 
chapter  on  accounting.^ 

DISBURSEMENTS   OF  AUXILIARY  DEPARTMENTS 

In  addition  to  the  work  which  is  carried  on  by  colleges 
functioning  as  colleges  of  arts,  hterature,  and  science,  they 
at  times  maintain  auxUiary  'departments,  e.g.,  of  music  and 
of  the  fine  arts.  In  very  rare  instances  are  these  departments 
conducted  as  part  of  the  educational  work  of  the  college. 
In  nearly  all  cases  a  part  only  of  the  work  in  them  is  counted 
toward  the  regular  college  degree,  and  the  departments  are 
supposed  or  expected  (particularly  at  Ijie  outset)  to  be  self- 
supporting — sometimes  even  to  yield  a  profit.  To  know 
exactly  what  happens,  whether  the  department  operates  at  a 
loss,  sustains  itself,  or  yields  a  profit,  an  accurate  and  separate 
accounting  should  be  kept  of  its  receipts  and  expenditures. 
The  cost  of  materials  and  services  furnished  by  the  college 
from  its  storerooms  and  central  power  plant  must  be  included. 
The  departments  in  question  should  be  charged  rental  for 
the  use  of  college  buildings,  and  depreciation  to  provide 
for  the  replacement  of  the  buildings  and  equipment  used. 

»P.67. 


22  COLLEGE  AND  UNIVERSITY  FINANCE 

Expenses  of  these  departments  are  of  the  same  general 
character  as  those  of  the  college  of  arts,  and  should  be 
controlled  by  the  same  budget  method.  A  separate  budget, 
however,  should  be  made  for  each. 

DISBURSEMENTS  FOR  DORMITORIES,   DINING-HALLS, 
BOOKSTORES,   ETC. 

The  third  main  division  of  expenses  of  operation  includes 
the  cost  of  operating  those  departments  which,  though  not 
forming  a  part  of  the  strictly  educational  work  of  the 
college,  may  yet  be  necessary  from  the  point  of  view  of  com- 
fort and  convenience  of  students  and  faculty.  Dining-halls, 
dormitories,  and  bookstores  are  examples.  The  cost  of  opera- 
tion of  each  of  these  should  be  kept  in  separate  accounts  apart 
from  all  other  operating  costs  of  the  college,  first,  because  these 
departments  are  conducted  usually  on  the  theory  that  they 
should  pay  their  own  way,  and  unless  a  strict  and  complete 
accounting  is  kept,  that  theory  cannot  be  proved;  second, 
because  the  cost  of  education  is  unknown  if  these  quasi- 
business  operations  are  not  kept  strictly  separate  from  it. 
Expenditures  for  these  departments  are  made  for  services, 
materials,  supplies,  rentals,  repairs,  renewals,  replacements, 
and  depreciation. 

EXPENDITURES   INCURRED  IN  RAISING   FUNDS 

Expenses  involved  in  raising  money  to  meet  the  cost  of 
current  operation  are  part  of  the  general  expense  of  the 
college  and  should  be  included  in  the  college  budget.  An 
endowed  college,  however,  is  usually  seeking  funds  for  new 
buildings,  equipment,  additional  campus,  and  larger  endow- 
ment, and  may  incur  considerable  expense  in  so  doing. 
Expenditures  are  made  for  the  salaries  and  traveling  expenses 


^  DISBURSEMENTS  23 

of  solicitors,  for  printing  and  publishing  bulletins  and 
pamphlets,  and  for  entertainment.  These  expenditures  are 
often  erroneously  charged  to  the  current  expenses  of  the 
college.  Sometimes  they  are  deducted  from  the  amount 
raised.  When  this  custom  is  followed  a  statement  should 
be  made  to  that  effect  when  the  fund  is  being  solicited  to 
prevent  misunderstanding.  The  best  way  to  provide  for 
these  expenses  is  to  raise  a  fund  especially  for  that  pur- 
pose. 


CHAPTER  IV 
ENDOWMENT 

Since  endowment  provides  a  large  part  of  the  income  of 
an  endowed  college  and  gives  its  name  to  the  class,  an  exposi- 
tion of  the  manner  in  which  such  funds  should  be  adminis- 
tered and  preserved  is  presented  in  this  chapter, 

DEFINITION 

'^  College  endowment  is  a  fund,  the  principal  of  which  is 
invested  and  kept  inviolate  and  only  the  income  used  for  the 
general  support  of  the  college,  or  for  some  specific  object 
in  connection  with  it.  The  fimd  thus  estabhshed  is  sacred 
and  should  not  be  touched  or  encroached  upon  for  any 
object  whatsoever;  its  income  alone  is  available.  Unless 
this  fundamental  fact  is  understood  and  respected,  the 
endowed  college  is  built  upon  an  insecure  foundation.  A 
college  has  no  right,  moral  or  legal,  to  "borrow"  from 
its  endowment,  to  hypothecate  endowment  securities,  to 
"invest"  endowment  in  college  buildings  and  equipment, 
or,  in  fact,  to  do  anything  with  endowment  except  to  invest 
it  so  that  it  wiU  produce  a  certain  and  steady  income. 

IMPROPER  USE   OF  THE   TERM    "ENDOWMENT" 

It  is  amazing  to  find  how  rarely  the  term  "endowment" 
is  used  in  its  correct  sense.  This  would  be  a  trivial  matter 
if  it  were  simply  a  matter  of  definition.  But,  as  the  reader 
will  soon  perceive,  unless  the  term  "endowment"  is  properly 
understood  by  the  trustees  and  ofl&cers,  the  financial  poUcy 

24 


ENDOWMENT  26 

of  an  endowed  college  may  go  seriously  astray.  Endowed 
colleges,  conducted  by  thoroughly  honest  and  well-meaning 
men,  have  at  times  been  seriously  embarrassed  or  wrecked 
because  those  in  charge  did  not  know  what  endowment  is 
and  what  principles  must  be  adhered  to  in  managing  trust 
funds.  College  authorities  frequently  use  the  term  "endow- 
ment" in  a  wrong  sense,  including  imder  that  name  sums  of 
money  given  for  college  buildings  and  land.  A  donation  for 
the  erection  of  a  recitation  building  is  not  endowment,  for, 
in  the  nature  of  things,  the  structure  cannot  last  forever, 
and  is  in  itself  not  income-producing.  According  to  the 
definition  of  endowment  here  given — ^namely :  a  fund  which 
shall  he  maintained  inviolate,  the  income  of  which  shall  alone 
he  used — gifts  for  the  purposes  mentioned  above  are  not 
"endowment."  Some  college  administrators  include  in 
endowment  certain  funds,  the  principal  of  which,  as  well  as 
the  income,  may  be  used.  If  the  principal  is  ever  used,  the 
fund  of  course  is  but  temporary,  and  hence  is  not  endowment. 
It  is  better  to  call  these  funds  "Funds  for  Special  Purposes, " 
and  thus  differentiate  them  from  endowment. 

Colleges  often  receive  gifts  and  bequests  without  condition. 
In  such  instances  the  trustees  are  warranted  in  using  the 
principal,  as  well  as  the  income,  as  they  choose.  They 
often  decide  to  add  these  gifts  and  bequests  to  endowment, 
and  then  later  justify  the  use  of  endowment  as  collateral  for 
current  loans,  for  the  erection  of  buildings,  or  for  some  other 
object,  on  the  ground  that  it  includes  sums  which  were  given 
without  restriction  as  to  use  of  principal.  When  this  occurs 
the  finances  of  the  college  are  inextricably  mixed,  the 
inviolabiUty  of  actual  endowment  is  lost  and  the  amount 
used  in  the  manner  described  frequently  exceeds  the  amount 
of  imconditional  funds  which  were  included.    To  obviate 


26  COLLEGE  AND  UNIVERSITY  FINANCE 

any  such  disaster,  and  to  preserve  rigidly  the  sacredness  of 
real  endowment,  under  no  circumstances  should  any  such 
donation  be  included  in  endowment  unless  it  has  been  set  aside 
as  endowment  by  deliberate  action  of  the  trustees.  Such 
action  should  be  irrevocable,  and  the  sum  so  included  should 
henceforth  be  treated  in  the  same  manner  as  sums  originally 
given  as  endowment.  "Once  endowment,  always  endow- 
ment, "  is  the  only  safe  and  clear  rule.  Until  such  time  as 
the  trustees  shall  have  decided  to  place  an  unrestricted  fund 
irrevocably  in  endowment  it  should  be  carried  as  an  uncondi- 
tional general  fund,  and  its  assets  should  be  included  among 
the  general  assets  of  the  college.  By  keeping  unrestricted 
general  funds  in  a  separate  account,  the  trustees  can  always 
know  what  sum  is  available  for  collateral  for  loans,  or  for 
any  other  college  need. 

There  is  another  reason  for  carrying  the  fund  separate: 
If  the  amount  of  endowment  is  shown  at  one  figure  in  one 
annual  report  and  placed  at  a  smaller  sum  in  succeeding 
reports  because  certain  items  which  were  first  included  in 
endowment  have  been  withdrawn  and  devoted  to  other 
objects  (and  especially  if  the  reports  are  not  clear  as  to  what 
the  objects  are),  the  friends  and  supporters  of  the  college 
may  get  an  erroneous  impression  of  the  care  with  which 
endowment  is  safeguarded,  and  their  attitude  toward  the 
college  may  thereby  be  unfavorably  affected. 

SOURCE   OF  ENDOWMENT 

Colleges  obtain  endowment  from  two  general  sources: 
from  persons  who  give  spontaneously  and  from  those  who 
are  solicited.  Alumni  make  gifts  and  bequests  to  show  their 
love  and  appreciation  of  their  Alma  Mater.  Many  others 
contribute  generously  to  college  endowment  because  they 


ENDOWMENT  27 

believe  that  college  training  is  of  great  value  as  a  preparation 
for  a  useful  life.  Some  of  these  persons,  not  having  attended 
college  themselves,  may  desire  to  make  it  possible  for  poor 
students,  situated  as  they  once  were,  to  go  to  college.  The 
large  number  of  persons  who  aid  colleges  spontaneously  is 
one  of  the  most  interesting  phenomena  of  the  present  century, 
and  speaks  eloquently  for  the  high  regard  in  which  college 
training  is  held. 

The  burden  placed  upon  colleges  by  the  increasing  cost 
of  operation,  by  the  advancing  standard  of  education,  by 
the  desire  to  make  them  of  the  widest  possible  service,  and 
the  imwillingness  to  shut  the  door  of  opportunity  to  any 
worthy  student  by  the  imposition  of  high  fees,  have  led  to  the 
solicitation  of  endowment  not  only  from  those  who  may  be 
naturally  interested,  but  from  all  persons  of  means.  Alumni 
organizations  and  associations  urge  trustees,  alumni,  and 
former  students  to  make  gifts  for  endowment,  and  people 
hving  in  the  college  town  and  territory  are  asked  to  assist 
on  the  grounds  of  local  pride.  Since  many  of  the  endowed 
colleges  were  estabUshed  by  and  are  aflBliated  with  religious 
denominations  for  the  express  purpose  of  surrounding  the 
students  with  a  religious  atmosphere,  members  of  these 
denominations  are  appealed  to  for  aid  on  the  ground  of 
reUgious  sympathy  and  obUgation. 

UNRESTRICTED   AND   RESTRICTED   ENDOWMENT 

Endowments  fall  into  two  principal  classes :  unrestricted, 
or  general,  and  restricted,  or  special.  The  income  from 
unrestricted  endowment  may  be  used  for  any  of  the  legitimate 
needs  of  the  college.  The  income  from  restricted  endow- 
ment may  be  used  only  for  the  express  purpose  for  which 
the  fimd  was  given.    In  the  case  of   restricted   endow- 


28  COLLEGE  AND  UNIVERSITY  FINANCE 

ment  care  must  be  taken  to  see  that  any  income  not  used 
during  the  year  is  carried  forward  to  the  next  year's  account 
so  as  to  be  applied  to  the  specific  purpose.  College  officers 
are  not  always  careful  in  this  particular,  especially  where 
the  specific  purpose  forms  a  part  of  some  large  item  of 
expense,  such  as  instruction. 

Unrestricted  endowment  is  most  acceptable  because  its 
income  can  be  used  in  accordance  with  changing  conditions, 
which  must  arise  in  the  course  of  long  periods  of  time, 
and  which  at  present  are  coming  with  startHng  rapidity. 
Trustees  should  exercise  caution  in  accepting  gifts  containing 
conditions  which  may  become  difficult  to  fulfil,  and  should 
try  to  persuade  prospective  donors  to  make  gifts  free  from 
restriction.  As  a  rule,  suggestions  are  welcomed  by  donors, 
and  they  willingly  make  gifts  in  harmony  with  the  established 
policy  of  the  college,  especially  if  it  has  been  well  defined 
and  declared. 

Endowment  which  provides  for  chairs  or  departments 
which  are  a  part  of  the  regular  work  of  the  college,  such  as 
chairs  in  English,  mathematics,  and  history,  is  next  in  value. 
Provisions  for  these  chairs  sets  free  a  corresponding  amount 
of  unrestricted  income  which  can  be  used  for  other  pm-poses. 
Endowment  for  unusual  subjects  may  be  interesting  and 
useful,  but  does  not  help  the  college  to  carry  on  its  indispen- 
sable work.  Terms  of  restricted  endowment  may  become 
obsolete,  and  colleges  may  not  modify  or  change  conditions 
imposed  by  the  donor  unless  permitted  to  do  so  by  a  court  of 
chancery.^ 

1  The  following  explanation  of  the  doctrine  of  cy  pres  has  been  furnished  by  the 
Counsel  of  the  University  of  Chicago:  "Under  the  doctrine  of  cy  pres  courts  have 
granted  permission  to  apply  gifts  in  a  manner  differing  from  the  expressed  conditions. 
This  doctrine  has  been  described  in  Bispham's  Principles  of  Equity  as  follows: 

" '  The  cy  pres  doctrine  is  one  under  which  courts  of  chancery  act,  when  a  gift  for 
charitable  uses  cannot  be  applied  according  to  the  exact  intention  of  the  donor.     In 


ENDOWMENT  29 

GIFTS  OP  PROPERTY  AND  SECURITIES  TO  BE  ENTERED  AT 
ACTUAL   VALUE 

Gifts  for  endowment  may  be  made  in  cash,  securities, 
or  any  property  possessing  value.  Preservation  of  the 
principal  being  a  most  essential  feature  of  endowment, 
gifts  of  securities  and  property  should  be  accepted  at  their 
market  value  at  the  date  of  gift.  If  that  value  cannot  be 
ascertained  readily,  a  competent  person,  or  persons,  should 
be  asked  to  estimate  their  value  as  of  that  date.  Gifts  for 
endowment  are  sometimes  accepted  at  a  value  placed  upon 
them  by  the  donor,  or  at  p.  r,  when  such  valuation  exceeds 
their  real  worth.  Should  the  college  later  dispose  of  the 
property  for  a  smaller  sum,  the  loss  would  cause  a  reduc- 
tion in  book  value  of  endowment,  and  might  lead  to  the 
erroneous  impression  that  endowment  had  been  dissipated. 
Even  while  the  college  retains  the  property,  the  inflated  value 


such  cases  the  courts  will  apply  the  gift,  as  nearly  as  possible  (cj/  pres),  in  conformity 
with  the  presumed  general  intention  of  the  donor;  for  it  is  an  estabUshed  maxim  in 
the  interpretation  of  wills,  that  a  court  is  bound  to  carry  the  will  into  effect  if  it  can 
see  a  general  intention  consistent  with  the  rules  of  law,  even  if  the  particular  mode  or 
manner  pointed  out  by  the  testator  cannot  be  followed.  Good  illustrations  of  this 
doctrine  will  be  found  in  the  Balhol  College  case  (Att.  Gen.  v.  Guise,  2  Vern.  266; 
Att.  Gen.  v.  Balliol  Coll.,  9  Mod.  407;  Att.  Gen.  v.  Glasgow  Coll.,  2  CoUyer,  665; 
1  H.L.  Cas.  800),  and  in  the  Ironmongers'  Case.'  (Att.-Gen.  v.  Ironmongers  Co.,  Cr. 
and  Ph.  208). 

"The  cy  pres  doctrine  as  commonly  understood  has  two  features.  The  first  is 
the  right  to  exercise  the  prerogative  authority,  whereby  a  court  is  enabled  to  deal 
with  a  bequest  to  a  charitable  use  having  no  particular  purpose,  as  a  bequest  to  charity 
generally,  treating  the  purpose  as  the  legatee  or  as  a  bequest  for  an  illegal  purpose,  or 
some  purpose  impossible  of  execution  for  some  reason.  The  other  is  the  right  by 
liberal  rules  of  construction,  to  deal  with  a  trust  having  a  designated  purpose,  though 
in  general  terms,  and  enforce  it  within  the  limits  of  such  purpose,  supplying  the  trustee 
if  necessary. 

"Again  I  quote  from  Bispham,  this  a  statement  of  the  rules  of  the  different  states. 

"  'It  is,  nevertheless,  true  that  the  cy  pres  doctrine  has  in  many  cases  in  the  United 
States  been  regarded  with  considerable  disfavor. 

"  'In  Fontain  r.  Ravenel  (17  How.  369)  the  Supreme  Court  of  the  United  States 
seemed  to  be  opposed  to  the  ey  pres  doctrine;  but  in  Lorings  ».  Marsh  (6  Wall.  337) 
and  the  Mormon  Church  Case  (136  U.S.  1)  the  doctrine  was  approved. 

"  'In  North  CaroUna,  Connecticut,  Indiana,  Iowa,  Alabama,  and  Wisconsin  the 
cy  pres  doctrine  haa  been  repudiated.    In  Pennsylvania,  although  the  principles  of 


30  COLLEGE  AND  UNIVERSITY  FINANCE 

at  which  it  is  carried  on  the  books  causes  the  income  return 
to  appear  to  be  relatively  low  and  gives  the  impression  of 
poor  business  management. 

BOOK  VALUE   OF  ENDOWMENT   ASSETS   SHOULD   NOT  BE 
CHANGED  TO   RECORD   ESTIMATED  VALUES 

Real  estate  is  often  given  for  endowment,  which,  in  the 
course  of  time,  increases  in  value  because  of  changing  condi- 
tions. Even  in  these,  as  in  other  cases,  it  should  be  carried 
on  the  books  at  its  real  value  at  the  time  when  it  was  given, 
and  no  change  should  be  made  except  to  record  expenditures 
for  additions  and  improvements,  which  increase  the  value  of 
the  property.  Buildings  will  of  course  depreciate  in  the 
course  of  time  and  become  valueless.    Provision  for  the 


the  statute  of  Elizabeth  were  said  to  have  been  adopted,  the  cy  prea  doctrine  was 
rejected;  but  the  doctrine  to  a  limited  extent  was  subsequently  introduced  by  statute 
[Note. — But  it  seems  the  doctrine  now  exists  in  all  its  fullness].  In  Maryland  and 
Virginia  neither  the  statute  of  Elizabeth  nor  its  principles  are  in  force,  and  charities 
are  treated  as  ordinary  trusts;  and  the  same  conclusion  has  at  last  been  reached  in 
New  York,  South  Carolina,  West  Virginia,  and  Wisconsin;  and  in  Minnesota,  with 
certain  exceptions. 

'"But  in  many  of  the  states,  on  the  other  hand,  the  cy  prea  doctrine  has  been 
received  with  more  favor.  In  all  of  the  New  England  states  it  has  been  directly 
countenanced  or  left  an  open  question.  In  Missouri  and  Illinois  the  doctrine  has  been 
approved.  In  New  Jersey  the  question  has  not  been  decided,  although  it  has  been 
said  that  a  bequest  that  would  be  enforced  in  England  might  not  be  carried  into  effect 
in  that  state,  on  the  ground  of  the  indefiniteness  of  its  objects,  or  the  impracticability 
of  its  exact  execution. 

"  'There  seems,  indeed,  to  be  no  valid  reason  why  the  judicial  cy  prea  doctrine,  aa 
explained  in  Jackson  v.  Phillips,  should  not  be  approved  in  all  those  states  wherein  the 
statute  of  Elizabeth  has  been  decided  to  be  in  force,  or  where  its  principles  have  been 
adopted  by  the  law  of  the  state;  in  other  words,  in  those  states  where  the  doctrine 
that  indefiniteness  of  the  object  is  no  objection  to  a  trust,  provided  it  is  for  a  charity, 
is  recognized.     This  is  the  case  in  many  of  the  states  of  the  Union.' 

"The  case  of  Jackson  r.  Phillips  (14  Allen  571)  referred  to  above  was  one  in  which 
one  of  the  trusts  in  the  will  was  for  the  circulation  of  literature  to  create  a  public 
sentiment  to  put  an  end  to  negro  slavery  in  the  states.  After  the  death  of  the  testator, 
but  while  the  will  was  being  litigated,  slavery  was  abolished  by  Constitutional  amend- 
ment. The  designated  purpose  having  failed,  the  fund  was  applied  to  the  New 
England  Branch  of  the  American  Freedmen's  Union  Commission." 


ENDOWMENT  31 

diminishing  value  must  be  made  each  year  by  charging 
its  amount  against  income  so  as  to  keep  endowment  intact. 
Cognizance  should  not  be  taken  of  any  increase  in  value 
in  real  estate  not  actually  realized  by  sale.  When  the 
property  is  sold  and  the  profit  actually  in  hand,  the  endow- 
ment should  be  augmented  by  the  amount  of  the  profit. 
The  figures  on  the  books  should  at  all  times  represent  actual 
transactions  and  should  not  be  modified  to  record  estimates 
of  changing  value.  This  rule  applies  not  only  to  gifts  of 
real  estate,  but  also  to  gifts  of  securities,  and  to  investments 
made  by  the  college  itself.  There  is  no  valid  reason  for 
increasing  the  book  value  of  endowment  investments,  but, 
where  a  college  decides  to  mark  up  the  value  of  property  or 
securities  the  amount  of  estimated  increase  should  be  added 
to  the  funds  to  which  the  securities  or  property  belong. 
Under  no  circumstances  should  an  increase  be  made  in  the 
book  value  of  investments  of  endowment  funds  to  replace 
endowment  used  for  other  purposes.  For  example,  if  John 
Doe  gives  a  security  valued  at  $10,000,  whose  market  value 
later  increases  to  $30,000,  the  college  should  not  write  up 
the  book  value  of  the  security  so  as  to  account  for  the  use 
of  $20,000  endowment  for  current  expenses.  If  the  book 
value  is  written  up  the  amount  to  the  credit  of  endowment 
should  be  correspondingly  increased.  A  well-known  uni- 
versity had  recently  among  its  investments  a  city  building 
carried  at  a  value  of  a  milHon  dollars.  The  building  had 
cost  the  university  about  six  hundred  thousand  dollars, 
but  its  book  value  had  been  changed  from  time  to  time 
without  any  increase  in  the  university's  endowment,  while 
the  rate  of  income  on  the  property  for  the  past  three  years 
had  averaged  less  than  3  per  cent,  and  no  charge  had 
been  made  for  depreciation. 


32  COLLEGE  AND  UNIVERSITY  FINANCE 

PRINCIPLES   OF  INVESTMENT 

f  As  endowments  are  established  to  provide  permanent 
regular  income,  it  is  important  that  they  be  invested  in  such 
a  way  that  the  income  shall  be  assured  and  the  principal 

r  kept  intact.  Safety  of  principal  is  the  first  consideration; 
I  otherwise,  the  permanency  of  the  income  may  be  endangered. 

^  .  The  size  of  the  income,  though  important,  is  secondary. 
The  scale  of  expenditures  expands  quickly  to  equal  an 
increasing  income,  but  does  not  respond  easily  when  income 
diminishes.  It  is,  therefore,  in  the  long  run  better  to  have 
a  stable  income,  even  if  somewhat  smaller  than  might  be 
obtained  temporarily,  than  to  enjoy  a  larger  income  for  a 
short  period  and  later  to  be  obHged  to  reduce  expenses  be- 
cause of  its  curtailment.  To  safeguard  the  principal  of  endow- 
ment, and  at  the  same  time  to  get  a  good  income,  is  one  of 
the  chief  problems  of  the  trustees  of  an  endowed  college. 
Many  states  have  passed  laws  describing  and  limiting  the 
kinds  of  investments  in  which  trust  funds  held  by  banks, 
trust  companies,  and  others  may  be  placed.  These  laws 
aim  to  maintain  the  body  of  the  trust,  and  yet  realize  the 
largest  income  consistent  with  security.  So  far  as  I  know, 
trustees  of  endowed  colleges  are  not  required  to  conform  to 
the  provisions  of  these  laws  in  investing  endowment,  and 
P^^nder  some  charters  they  are  especially  exempted.  But 
they  should,  nevertheless,  familiarize  themselves  with  them 
and  be  able  fully  to  justify  investments  which  do  not  har- 
monize with  the  trust  laws.^ 

SUITABLE   B^NDS   OP  INVESTMENTS 

f  It  is  not  easy  to  specify  in  detail  the  kinds  of  investments 

f     which  colleges  should  make.    At  best  only  general  principles 
j      can  be  laid  down. 

>  See  Appendix  for  Wisconsin  Trust  Laws  as  to  Investments  for  Trust  Funds. 


ENDOWMENT  33 

Investments  of  a  purely  speculative  character,  such  as 
stocks  of  mining  corporations  and  of  new  companies  whose 
stabiUty  has  not  been  demonstrated,  are  not  suitable.  As  a  ) 
rule,  common  stocks  should  be  avoided.  If  any  exception  is 
made,  it  should  be~in  favor  of  well-estabHshed  companies 
with  a  large  margin  of  surplus  and  a  regular  dividend  record 
covering  a  long  period.  Carefully  selected  first  mortgage  ,. 
bonds  and  real  estate  first  mortgages  on  improved  farms  in 
good  locaHties,  preferably  in  the  same  state  as  the  college, 
or  ia  contiguous  states,  and  first  mortgages  on  city  property 
where  the  college  is  located,  or  in  nearby  cities,  make  proper 
investments.  The  proximity  of  the  property  mortgaged 
makes  it  easier  to  learn  its  value  and  to  note  any  circum- 
stances which  might  lead  to  its  depreciation.  Since  real 
estate  mortgages  usually  run  from  three  to  five  years,  no 
serious  depreciation  in  value  should  occur  in  that  time 
which  was  not  foreseen  by  the  trustees.  Loans  secured  by 
mortgages  should  not  exceed  50  to  60  per  cent  of  the  appraised 
value  of  the  property.  The  value  should  be  established 
by  personal  investigation  by  the  college  authorities,  assisted, 
if  necessary,  by  a  person  skilled  in  real  estate  values.  The 
title  should  be  examined  by  an  attorney,  and  no  loan  should 
be  made  imless  the  title  is  clear,  preferably  guaranteed. 
It  is  better  not  to  loan  on  property  whose  value  depends 
upon  its  use  for  a  special  purpose  or  business,  unless  the  loan 
is  proportionate  to  the  value  which  the  property  would  have 
for  any  other  piu-pose  whatsoever.  An  example  of  making 
loans  on  property  used  for  a  special  purpose  is  furnished  by 
College,  which  has  loaned  the  greater  part  of  its  endow- 
ment to  churches  and  hospitals  belonging  to  the  denomina- 
tion which  supports  the  college.  These  loans,  beiag  of  a 
special  character,  are  not  readily  negotiable.    If  they  are 


34  COLLEGE  AND  UNIVERSITY  FINANCE 

not  paid  when  due,  or  if  the  interest  becomes  delinquent, 

the  college  has  not  the  usual  recourse,  but  from  considerations 

■"-  of  policy  must  continue  to  carry  them.     Inducement  to 

/  make  loans  of  this  kind  was  doubtless  very  great,  but  if  the 

\y  1    college  had  incorporated  in  its  by-laws  a  rule  prohibiting  it 

S         from  loaning  money  on  property  used  for  special  purposes 

L  it  would  have  been  protected  against  the  difficulties  inherent 

in  the  situation  in  which  it  now  finds  itself. 

|\  DIVERSIFICATION   OF  INVESTMENTS 

^  College  funds  should  be  invested  to   provide  suitable 

diversification  as  to  kinds  and  to  territory  in  which  the  invest- 

<L  ments  are  located.  Securities  purchased  should  be  repre- 
.,  sentative  of  different  businesses  and  industries  so,  that  if 
any  are  affected  by  depression,  strikes,  or  untoward  circum- 
stances, the  entire  endowment  income  will  not  suffer.  A 
historic  instance  which  should  serve  as  a  warning  is  furnished 
by  the  early  history  of  Johns  Hopkins  University.  Its 
original  endowment  was  given  by  Mr.  Hopkins  in  the  form 
of  Baltimore  &  Ohio  Railroad  stock — so  valuable  at  the  time 
and  seemingly  so  secure  that  in  a  letter  Mr.  Hopkins  recom- 
mended that  his  trustees  should  hold  and  protect  it.  Within 
a  few  years  financial  disaster  overtook  the  railroad  and,  as 
a  result,  the  university  was  for  years  seriously  crippled. 
Ultimately,  it  parted  with  the  securities  in  question  at  a 
considerable  loss.  The  Johns  Hopkins  Hospital,  founded 
at  the  same  time,  was  endowed  with  funds  variously  invested. 
Its  resources  proved  stable,  partly  because  they  were  wisely 
varied.  For  a  similar  reason  there  should  be  diversity  with 
respect  to  locality.  Misfortune  sometimes  visits  one  section 
of  the  country,  affecting  unfavorably  all  trades  and  property 
therein,  while  leaving  other  sections  untouched.  Because 
the  field  of  operation  of  railroads  covers  most  parts  of  the 


ENDOWMENT  35 

country,  first  mortgage  railroad  bonds  have  long  been  con- 
sidered as  embodying  the  chief  characteristics  of  a  proper 
investment  of  college  endowment.  The  bonds  usually  run 
for  a  long  period,  are  widely  dealt  in,  and  can  easily  be 
converted  into  cash.  Since  the  European  war  the  financial 
condition  of  almost  all  railroads  has  been  somewhat  uncertain, 
so  that  the  railroad  first  mortgage  bond  perhaps  at  present 
is  not  per  se  in  the  highest  class.  Bonds  of  public  utihty 
companies  were  also  once  much  favored  as  suitable  invest- 
ments for  college  funds.  At  present  many  of  these  companies 
are  being  subjected  to  exacting  laws  as  to  rates  and  service, 
which  have  depressed  the  value  of  their  securities.  Govern- 
ment, state,  municipal,  county,  and  district  tax-exempt 
bonds  now  yield  a  much  higher  rate  of  interest  than  they 
did  formerly,  and  possess  all  the  requirements  of  a  good 
investment.  The  tax-exemption  feature,  however,  which 
appeals  to  a  private  investor  is  of  no  advantage  to  a  college 
because  of  its  own  tax-exemption  privileges.  Other  things 
being  equal,  the  college  should  therefore  purchase  high-grade 
bonds  not  tax  exempt,  and  benefit  by  the  more  favorable 
yield  on  cost.  Preferred  stock  of  well-seasoned  industrial  '\ 
and  other  corporations  is  now  coming  into  favor  as  a  sound 
investment.  Where  the  company  has  no  bonds  outstanding 
the  stock  is  secured  by  all  the  company's  assets.  In  most 
cases  the  dividends  are  cumulative  and  at  a  fixed  rate. 
Endowments  may,  to  a  reasonable  extent,  be  invested  in 
choice  preferred  stocks. 

INVESTMENTS  PURCHASED  SHOULD  BE  ENTERED  ON  THE 
BOOKS  AT  COST 

Investments  of  endowment  should  be  entered  on  the 
books  at  cost.  In  this  manner  the  funds  can  be  fully  and 
accurately  accounted  for.    The  following  equation  should 


1 


}. 


3 


36  COLLEGE  AND  UNIVERSITY  FINANCE 

always  be  maintained :  Endowment  investments  at  cost  plus 
endowment  cash  awaiting  investment  should  always  equal 
total  of  endowment. 

One  principle  must  be  kept  constantly  in  mind,  namely: 
College  accoimts  should  be  the  record  of  actual  transactions. 
If  securities  are  entered  at  par  value,  as  is  often  the  case, 
it  may  be  difficult  to  account  fully  for  endowment  funds, 
and  the  equation  given  above  is  not  preserved.  Some 
colleges  which  have  the  habit  of  carrying  securities  at  par, 
debit  or  credit  college  income  with  the  difference  between 
par  and  the  price  paid  for  the  security.  This  method  is 
not  proper  because  income  should  not  be  increased  or  dimin- 
ished by  changes  in  the  principal  of  investments  belonging 
to  endowment.  All  transactions  relating  to  the  principal  of 
endowment  should  be  kept  entirely  separate  from  those 
relating  to  the  current  operations  of  the  college,  and  the  cash 
in  no  wise  mingled  or  combined.  Any  endowment  uninvested 
should  always  be  in  cash  available  for  investment. 

Profit  reaUzed  from  the  sale  of  an  investment  should 
increase  the  endowment,  and  loss  sustained  should  diminish 
it.  Where  endowments  are  grouped  and  invested  as  a  whole 
the  profits  and  losses  realized  may  be  carried  in  an  account 
called  "Profit  and  Loss  on  Investments"  and  the  net  profit, 
if  any,  held  for  the  benefit  of  all  endowments. 

In University  investments  in  bonds  and  stocks 

are  carried  on  the  books  at  par,  and  the  amount  of  endow- 
ment changed  from  time  to  time  so  as  to  conform.  Under 
this  plan  endowments  may  vary  considerably  from  year  to 
year,  according  as  purchases  are  made  at  a  premium  or  at  a 
discount.  This  is  most  confusing,  for  it  is  difficult  for  any- 
one to  understand  why  a  fund  created  this  year  by  a  cash 
gift  of  one  hundred  thousand  dollars  should  next  year  be 


ENDOWMENT  37 

shown  at  one  hundred  twenty-five  thousand  dollars,  while 
m  the  succeeding  year  it  may  be  reported  at  eighty-five 
thousand  dollars,  because  in  the  first  instance  it  was  invested 
in  bonds  purchased  at  a  discount,  and  later  it  had  been  thought 
best  to  change  the  investment  to  bonds  purchased  at  a  pre- 
miiun.  The  amount  of  endowment  should  remain  unchanged 
from  year  to  year  except  as  it  may  be  augmented  by  addi- 
tional gifts  or  by  profits  realized  from  the  sale  of  investments 
or  diminished  by  losses  incurred  in  disposing  of  them. 

When  bonds  are  bought  at  a  premium  provision  should 
be  made  to  care  for  the  premium  by  the  maturity  of  the 
bonds  by  taking  a  portion  of  the  interest  received  each  year 
and  setting  it  aside  for  that  purpose.^ 

FUNDS  INVESTED  SEPARATELY  OR  AS  A  WHOLE 

Two  principal  methods  are  employed  in  investing  college 
endowment:  Every  fimd  may  be  invested  separately;  or 
funds  may  be  invested  as  a  whole,  each  fund  sharing  in  the 
income  in  the  ratio  that  it  bears  to  the  total  of  the  funds. 
Reasons  may  be  given  in  favor  of  each  plan.  Under  the 
first,  any  profit  realized  on  the  investments  benefits  the  fund 
to  which  they  belong,  but  on  the  contrary  any  loss  diminishes 
it.  K  it  happen  that  the  investments  yield  a  high  rate  of 
income  the  object  for  which  the  fund  was  given  receives 
the  advantage,  while,  conversely,  if  the  rate  is  low  it  suffers 
the  disadvantage.  Colleges  do  not  always  have  freedom  to 
choose  which  of  the  two  methods  they  shall  employ  because 
donors  sometimes  stipulate  that  the  fund  given  by  them 
shall  forever  be  kept  separate  and  separately  invested. 
Securities  are  sometimes  given  in  which  the  trustees  them- 
selves would  not  invest,  though  the  donor,  through  his 

'  See  p.  73,  chapter  on  accounting. 


38  COLLEGE  AND  UNIVERSITY  FINANCE 

knowledge  of  the  circumstances  affecting  their  value,  thinks 
highly  of  them.  It  is  better  to  carry  such  securities  in  a 
separate  account  until  they  are  paid  or  disposed  of,  and  the 
trustees  have  invested  the  proceeds  in  securities  of  their  own 
selection.  If  any  endowment  is  of  considerable  size  it  may 
be  invested  separately  to  advantage,  but  if  it  is  small  there 
is  greater  difficulty  in  keeping  it  fully  invested. 

The  second  plan,  viz.,  the  combination  of  funds  and  their 
investment  as  a  whole,  has  several  arguments  in  its  favor. 
In  the  first  place,  it  obviates  the  necessity  of  keeping  separate 
accounts  and  records  to  show  the  investments  belonging  to 
each  fund;  second,  the  cash  uninvested  consists  of  one  sum 
and  can  be  invested  more  readily;  third,  each  fund  receives 
the  same  rate  of  income;  fourth,  the  rate  of  income  is  less 
likely  to  vary  from  year  to  year  because  of  the  amount  and 
variety  of  investments;  lastly,  each  fund  is  preserved  from 
extinction  because  the  losses  and  gains  are  divided  among 
the  fimds  pro  rata,  thus  assuring  the  perpetuation  of  every 
fund  unless  it  should  prove  that  all  investments  become  of 
no  value,  a  contingency  in  the  highest  degree  improbable. 

From  the  foregoing  it  will  be  apparent  that  a  college  whose 
funds  are  at  all  numerous  may  probably  use  the  two  plans 
of  investment  simultaneously — the  individual  method  where 
the  conditions  of  gift  or  circumstances  require  it,  and  the 
group  method  in  the  case  of  all  other  funds.  Under  the 
group  method  care  must  be  taken  in  including  funds  estab- 
lished by  gifts  of  property  or  securities  to  see  that  they  are 
not  estimated  at  an  inflated  value;  otherwise,  the  amount 
of  a  particular  fund  is  unduly  increased  and  the  proportion 
of  the  combined  income  allotted  to  it  unduly  lai^e.  Where 
the  method  of  investing  endowment  as  a  whole  prevails  a 
fixed  rate  of  income  is  often  assigned  to  restricted  funds, 


ENDOWMENT  39 

and  the  residue  given  to  unrestricted  funds.  This  is  not  an 
equitable  arrangement,  and  as  the  rate  allowed  is  usually  at 
the  minimum  rather  than  at  the  maximum  the  income  of 
restricted  funds  is  diminished  for  the  benefit  of  the  general 
income.  Each  fund  should  receive  its  just  proportion  of 
the  income  actually  reahzed. 

CONSTANT  CARE  REQUIRED 

It  has  already  been  said  that  it  is  difiicult  to  lay  down 
rules  specifying  the  particular  sort  of  investment  in  which 
college  trustees  should  place  the  funds  they  hold  in  trust, 
because  the  conditions  of  trade  and  industry  vary  so  rapidly 
in  response  to  discoveries,  new  inventions,  and  changing 
poUtical  situations.  At  best,  one  may  only  enunciate  the 
general  principles  to  which  all  investments  should  conform. 
The  responsibility  for  the  prudent  investment  of  funds  rests 
upon  all  the  trustees,  severally  and  collectively,  and  in  the 
light  of  that  responsibiHty  they  should  satisfy  themselves 
that  every  investment  meets  the  requirements.^  In  making 
investments  they  should  keep  the  purpose  and  safety  of  the 
trust  in  mind;  they  must  not  be  misled  by  the  prospect  or 
possibiHty  of  some  incidental  or  secondary  benefit  that 
might  ultimately  impair  the  value  of  the  fund  itself.    For 

example, College  had  among  its  assets  a  certain  piece 

of  real  estate  yielding  a  low  rate  of  income,  which,  having 
been  given  without  restriction,  could  be  used  in  any  way  the 
trustees  saw  fit.  Sometime  later  the  coUege  received  a 
bequest  of  $40,000  for  a  specific  endowment.  When  the 
executor  paid  the  bequest  in  cash  the  college  was  in  need 
of  funds  to  pay  its  current  debts.    To  meet  this  need  the 

>  Mention  ia  made  later  of  the  functions  of  the  Committee  on  Finance  and  Invest- 
ment  (p.  186). 


40  COLLEGE  AND  UNIVERSITY  FINANCE 

trustees  assigned  a  portion  of  the  land,  which  they  valued  at 
$40,000,  to  the  new  endowment,  and  used  the  $40,000  to 
pay  college  bills.  The  procedure  was  doubtless  legal,  but 
the  testator  would  probably  not  have  approved  it,  and  for 
good  reason,  for  its  only  favorable  aspect  was  that  it  simply 
reheved  the  trustees  of  the  necessity  of  raising  $40,000. 
Extravagances  and  recklessness  will  inevitably  occur,  if 
such  practices  are  permitted,  for  administrators  will  uncon- 
sciously depend  on  windfalls  to  rescue  them  from  embarrass- 
ment. To  make  matters  worse,  the  real  estate  which  the 
college  "sold"  to  the  new  fund  later  became  non-income- 
producing.  Several  serious  errors  of  judgment  were  com- 
mitted: (1)  The  college  should  probably  not  have  incurred 
the  $40,000  debt;  (2)  if  the  debt  was  unavoidable,  independ- 
ent measures  should  have  been  taken  to  raise  the  money 
needed  to  discharge  it;  (3)  the  land  should  have  been  held 
as  a  general  asset  and  should  have  been  disposed  of  at  the 
proper  time,  the  sum  received  then  being  invested  on  the 
principles  enunciated  above;  (4)  the  cash  bequest  should 
have  been  treated  as  inviolable,  should  have  been  conserva- 
tively invested,  and  so  preserved  as  income-producing 
endowment. 

Nor  do  the  responsibihties  of  the  trustees  end  when 
investments  are  made.  It  is  their  duty  to  be  on  the  watch 
constantly  to  detect  any  circumstances  or  causes  which 
might  affect  their  value.  As  soon  as  they  detect  anything 
which  in  their  judgment  may  unfavorably  affect  the  final 
value  of  an  investment  they  should  take  such  action  as  the 
situation  demands.  So  long  as  there  is  no  question  about  the 
ultimate  payment  of  the  security,  and  so  long  as  the  interest 
is  paid  regularly,  the  trustees  are  not  particularly  concerned 
with  changing  market  value.    But  they  should  be  much 


ENDOWMENT  41 

concerned  if  the  fall  in  market  value  forecasts  a  permanent 
decrease  in  the  value  of  the  security  and  its  ability  to  con- 
tinue to  pay  interest.  Trustees  too  often  feel  that  their  duty 
is  finished  when  they  have  made  an  investment,  and  there- 
after give  little  or  no  thought  to  it  unless  through  the 
suspension  of  interest  or  dividends,  or  some  other  untoward 
happening,  their  attention  is  forcibly  turned  in  that  direction. 
This  laissez-faire  policy  is  also  encouraged  by  the  opinion 
prevalent  that  if  trustees  change  investments  frequently 
they  may  be  accused  of  using  the  college  funds  for  speculative 
gain.  There  is  a  fundamental  distinction  between  disposing 
of  securities  for  prudential  reasons  and  selling  them  in  the 
hope  of  profiting  by  variations  in  market  value.  The  former 
is  sensible,  the  latter  reprehensible. 

Trustees  are  often  restrained  from  selling  securities 
whose  value  is  decreasing  because  of  the  resulting  shrinkage 
in  endowment.  It  frequently  happens  that  securities  pay 
interest  for  some  time  at  least  after  serious  depreciation  in 
value  has  occurred,  a  fact  which  may  give  rise  to  the  hope 
that  their  former  value  may  be  restored  and  the  necessity 
of  taking  the  loss  prevented.  Trustees,  however,  should 
observe  the  first  signs  of  depreciation  and  consider  whether 
it  is  better  to  dispose  of  the  security  promptly  and  take  the 
loss,  or  continue  to  hold  it. 

REPORTS  TO  TRUSTEES   ON   CONDITION  OF  SECURITIES 

To  enable  trustees  to  keep  in  touch  with  the  situation 
with  regard  to  the  investment  of  endowment  funds  it  is  a 
good  plan  for  the  administrative  ofl&cers  to  send  them 
frequent  reports,  at  least  as  often  as  once  in  three  months, 
showing  in  parallel  columns  the  securities  owned,  their  cost, 
the  present  market  value,  the  market  value  a  year  ago,  the 


42  COLLEGE  AND  UNIVERSITY  FINANCE 

amount  of  increase  or  decrease  in  present  market  value  as 
compared  with  cost,  and  the  income  yield  on  present  market 
value.  If  the  reasons  for  change  in  value  are  known  they 
should  be  given  in  a  column  headed  "Remarks."  Reports 
of  a  similar  kind  should  be  made  regarding  real  estate 
mortgages  and  other  investments  which  are  not  hsted  in 
market  reports.  In  the  case  of  real  estate  and  farm  mort- 
gages the  report  might  give  a  hst  of  all  those  which  are 
overdue,  or  on  which  interest  is  impaid,  and  the  location  of 
the  property  mortgaged,  together  with  a  report  of  the  amount 
of  mortgages  on  other  property  in  the  same  locality  which 
the  college  holds.  The  information  thus  furnished  would  be 
helpful  to  the  trustees  in  determining  whether  they  should 
make  more  loans  on  property  in  those  locahties.  The 
status  of  real  estate  owned  might  be  disclosed  by  reports 
showing  the  gross  rental,  the  cost  of  operation,  and  the  net 
return  as  compared  with  those  of  previous  years.  A  series 
of  reports  made  on  these  principles  ought  to  be  of  assistance 
to  the  trustees  in  enabling  them  to  safeguard  endowment 
and  to  assure  to  the  college  a  steady  income  as  large  as  is 
consistent  with  safety. 

ENDOWMENT  FUNDS  SHOULD  NOT  BE  LOANED  TO 
TRUSTEES   AND   OFFICERS 

From  the  point  of  view  of  policy  and  good  business 
procedm"e  endowment  funds  should  not  be  loaned  to  any 
trustee,  officer,  or  employee  of  the  college,  nor  to  any  business 
which  they  own,  nor  to  any  corporation  for  whose  manage- 
ment they  are  responsible.  Neither  should  any  loan  be 
made  to  any  person  upon  the  guarantee  of  a  trustee,  oflficer, 
or  employee.  If  the  college  charter  does  not  prohibit  this 
practice  it  should  be  forbidden  by  the  by-laws  or  by  resolu- 


ENDOWMENT  43 

tion  of  the  board.  The  establishment  of  this  principle 
strengthens  the  hands  of  the  trustees  and  avoids  embarrass- 
ment which  might  arise  through  the  request  for  such  loans. 
The  reason  for  this  is  quite  apparent  for  if,  through  mis- 
fortune or  otherwise,  the  interest  on  such  loans  becomes 
delinquent,  or  the  loans  themselves  are  not  paid  at  maturity, 
the  trustees  of  the  college  are  placed  in  the  position  of  having 
to  enforce  collection  against  their  own  officers,  which  they 

might  be  very  reluctant  to  undertake.     The  trustees  of 

CoUege,  through  its  finance  and  investment  committee, 
had  made  several  loans  secured  by  municipal  bonds,  taken 
at  par,  to  one  of  its  own  trustees.  When  the  matter  came 
under  observation  of  the  author  the  market  value  of  the 
bonds  was  less  than  the  par  value.  The  hands  of  the 
college  were  tied;  it  could  neither  sell  the  bonds  nor  very 
well  ask  for  additional  seciuity. 

UNDESIRABILITY   OF   INVESTING   ENDOWMENT   EN   COLLEGE 
BUILDINGS  AND   LAND 

Endowed  colleges  sometimes  use  endowment  funds  to  con- 
struct buildings,  especially  dormitories,  and  to  purchase  addi- 
tional land  for  campus.  In  so  far  as  the  expenditures  have 
been  made  for  campus,  for  recitation  buildings,  laboratories, 
and  Hbraries,  which  are  in  themselves  non-productive,  endow- 
ment is  destroyed  in  order  that  provision  may  be  made  for 
what  seems  to  be  an  exigent  need  of  the  college.  Campus,  lab- 
oratories, libraries,  recitation  buildings  are  not  endowment,  and 
funds  so  invested  simply  cease  to  be  endowmerd,  for  they  produce 
no  money  income.  In  some  cases  where  the  funds  are 
expended  for  non-productive  college  buildings  and  land,  the 
trustees  try  to  keep  up  appearances  by  charging  current 
expenses  of  the  college  with  the  customary  rate  of  interest 


44  COLLEGE  AND  UNIVERSITY  FINANCE 

on  the  sum  used,  and  crediting  endowment  income.  This 
course  is  nothing  but  juggling.  The  investment  in  question 
does  not  earn  interest;  hence  the  amoimt  of  the  interest 
credited  to  the  endowment  must  come  from  some  other 
source.  The  fact  is  that  the  college  income  is  reduced  to  the 
extent  of  the  interest  on  the  sum  used  to  construct  the  build- 
ing or  buy  the  land,  and  administrative  morale  has  been 
impaired  by  the  use  of  subterfuge. 

The  use  of  endowment  for  building  dormitories  may  seem 
on  first  thought  to  be  justified  on  the  theory  that  they  may 
confer  a  double  benefit  on  the  college,  first,  by  producing 
income,  and  second,  by  providing  accommodations  for 
students  who  pay  tuition.  As  has  been  said  before,  inci- 
dental or  secondary  benefit  resulting  to  a  college  from 
investments  of  endowment  funds  should  not  be  the  con- 
trolling motive,  and  the  same  exacting  tests  should  be 
appHed  to  an  investment  in  dormitories  as  to  any  other 
endowment  investment,  namely:  Will  the  permanency  of 
the  principal  be  conserved,  and  will  the  rate  of  income  be 
as  high  and  regular  as  from  a  high-grade  investment  ?  The 
rate  of  income  on  dormitories  given  in  college  reports  is  not 
the  actual  rate  in  many  instances.  Many  of  the  expenses 
incurred  in  their  maintenance  and  management  are  included 
in  the  general  expenses  of  the  coUege  instead  of  being  charged 
to  the  operation  of  the  dormitories.  Provision  is  rarely 
made  for  depreciation  to  provide  a  fund  for  the  replacement 
of  the  principal  invested,  which  must  be  returned  intact  to 
endowment  when  the  building  is  worn  out  if  the  permanency 

of  endowment  is  to  be  secured.    Thus,  University 

had  by  permission  of  the  donor  used  hbrary  endowment  to 
bmld  dormitories  on  the  understanding  that  6  per  cent  per 
annum  on  the  sum  expended  should  be  credited  to  hbrary 


ENDOWMENT  45 

income.  In  arriving  at  the  income  available  for  this  purpose 
no  charge  was  made  for  heat  and  hght  (because  it  came  from 
the  central  power  plant)  and  no  charge  was  made  to  provide 
a  fund  for  replacement  of  principal. 

Carefully  prepared  statements  have  been  made  by  a  few 
institutions  showing  the  results  of  operation  of  their  dormi- 
tories for  a  period  of  years,  including  among  the  expenses  all 
current  charges,  as  weU  as  a  reserve  for  replacement  of 
principal.  These  reports  show  that  the  average  return  is  a 
little  over  3  per  cent.  For  a  few  years  after  the  dormitories 
were  built  their  net  income  was  large  because  few  repairs 
were  needed,  but  as  the  buildings  became  older  the  amount 
needed  for  repairs  became  much  greater.  It  would  thus 
seem  that  judging  the  matter  on  its  merits  as  an  investment, 
dormitories  do  not  possess  the  requisite  qualifications.  As 
to  the  incidental  benefit  which  may  arise  from  an  increase  in 
attendance,  it  is  well  to  keep  in  mind  the  following  principle 
regarding  college  endowment:  College  endowment  should  be 
invested  in  such  a  manner  that  income  on  the  investments  shall 
in  no  wise  he  affected  by  the  operation  of  the  college,  nor  by  any 
circumstances  relating  thereto.  If  the  college  revenue  is  di- 
minished through  a  smaller  attendance  there  is  then  greater 
need  of  income  from  endowment.  If  attendance  diminishes, 
dormitories  may  have  to  be  kept  open  at  a  loss,  and  pre- 
cisely at  the  time  when  the  college  is  in  need  of  more  rather 
than  less  income  from  endowment.  The  college  cannot  sell 
its  dormitories  if  they  become  improfitable,  nor  dispose  of  its 
buildings  while  it  is  a  going  concern.  But  if  it  had  invested 
in  securities  it  could  readily  change  the  form  of  invest- 
ments.* 

'  See  pp.  33-34.  Objections  to  investments  in  property  devoted  to  a  special 
purpose,  not  readily  merchantable. 


46  COLLEGE  AND  UNIVERSITY  FINANCE 

For  various  reasons,  therefore,  the  investment  of  endow- 
ment in  college  campus  and  buildings,  even  dormitories, 
is  unwise. 

HYPOTHECATION   OF  ENDOWMENT  INVESTMENTS 

Still  another  misuse  of  endowment  is  encountered  from 
time  to  time,  viz.,  the  pledging  of  endowment  investments 
as  security  for  loans  for  the  current  expenditures  of  the 
college.  Trustees  who  would  repudiate  scornfully  the  sugges- 
tion of  using  college  endowment,  even  temporarily,  to  pay 
current  debts,  have  at  times  authorized  its  use  as  collateral 
for  loans  for  current  purposes,  apparently  overlooking  the 
fact  that  by  so  doing  they  have  parted  temporarily  with  the 
securities,  and  can  regain  them  only  by  raising  money  to 
repay  the  loan.  If  they  fail  to  redeem  the  collateral  from 
the  bank  they  have  just  as  truly  used  endowment  funds  for 
current  expenses  as  if  they  had  sold  the  securities  and  used 
the  cash. 

If  the  question  of  legahty  were  raised  it  would  probably 
be  found  that  a  trust  fund,  such  as  endowment,  created  with 
the  understanding  that  the  principal  shall  be  maintained 
inviolate  and  the  income  only  used,  could  not  be  put  in 
jeopardy  for  any  purpose  not  connected  with  the  preservation 
of  the  principal  of  the  trust.  Examples  of  using  endowment 
investments  as  collateral  for  loans  for  the  needs  of  colleges 
are  unfortunately  too  numerous  and  are  made  even  in  defi- 
ance of  the  provisions  of  the  charter  and  by-laws.     

College,  some  years  ago,  had  prohibited  by  resolution  the  use 
of  any  endowment  assets  as  collateral.  Notwithstanding 
that  prohibition,  it  later  authorized  the  treasurer  by  formal 
resolution  to  pledge  as  collateral  any  security  which  the 
college  possessed.    The  treasurer  accordingly  used  Liberty 


ENDOWMENT  47 


bonds  belonging  to  endowment.    The  charter  of 


University  states  that  endowment  investments  must  not  be 
hypothecated.  Nevertheless,  nearly  three-fourths  of  its 
endowment  was  quite  recently  so  used.  This  institution  is 
therefore  practically  bankrupt.  The  enormity  of  the  offense 
does  not,  however,  depend  upon  the  size  of  the  amount. 
Endowment  being  inviolable,  not  a  single  bond  or  share  of 
stock  must  ever  be  hypothecated  for  the  purpose  of  paying 
any  bill  whatsoever,  be  the  college  little  or  big.  And  there 
is  sound  practical  sense,  as  well  as  sound  law  and  ethics, 
in  this  inflexible  position,  for  when  once  a  small  block  of 
stock  has  been  hypothecated  and  redeemed  it  is  easy  to 
increase  the  scale  of  the  transaction.  Ultimately,  hypothe- 
cation is  resorted  to  in  order  to  enable  the  institution  to 
undertake  ambitious  work  that  it  cannot  afford,  in  the  hope 
that  some  benefactor  may  be  found  to  endow  it.  Financing 
of  this  kind  inevitably  ends  in  disaster.  "  Once  endowment, 
always  endowment"  is  again  the  only  safe,  as  it  is  the  only 
legitimate,  and  the  only  ethical  principle. 

FLOATING   DEBT 

The  income  from  unrestricted  endowment  may  be  used 
for  any  of  the  legitimate  expenses  of  the  college,  but  where 
colleges  have  accumulated  floating  debts  through  deficits 
from  operation,  and  are  carrying  them  by  bank  loans, 
usually  at  a  high  rate  of  interest,  a  corresponding  amount 
of  endowment  income  is  absorbed  in  paying  the  interest, 
and  its  use  for  ordinary  expenses  prevented.  College 
deficits,  like  rolling  snowballs,  tend  to  increase.  The  larger 
they  are,  the  larger  is  the  amount  of  current  income  required 
to  pay  interest  on  them,  and  the  smaller  is  the  sum  available 
for  cmrent  operations,  with  the  result  that  a  larger  deficit 


48  COLLEGE  AND  UNIVERSITY  FINANCE 

occurs,  which  in  turn  increases  the  floating  debt,  and  so 
the  vicious  circle  is  enlarged.  Some  college  administrators 
have  held  that  a  debt  is  a  beneficial  thing  because  it  acts  as  a 
stimulus  in  encouraging  friends  to  make  donations.  It  may 
possibly  stimulate  ofl&cers  to  greater  activity  in  seeking  gifts, 
but  the  person  who  likes  to  pay  old  debts  is  rarely  found. 
People  of  means  and  of  sound  business  judgment  much 
prefer  to  give  money  in  advance  of  its  expenditure,  while 
they  have  some  choice  in  the  matter.  The  budget  system, 
which  will  be  described  in  chapter  vi  is  designed  to  enable 
a  college  to  bring  its  income  and  expenditures  into  harmony. 
In  the  absence  of  a  budget  system  colleges  often  spend  more 
than  their  income,  gradually  accumulating  a  heavy  burden 
of  debt,  which,  in  effect,  renders  a  corresponding  amount  of 
endowment  of  no  avail  for  constructive  work.     An  example 

of  how  endowment  is  nullified  is  furnished  by College, 

which,  in  1918,  obtained  subscriptions  to  pay  off  its  debts, 
but  while  the  pledges  were  being  collected  it  accumulated 
another  debt  of  nearly  $200,000.  It  must  now  start  a  cam- 
paign to  clear  away  the  new  debt.  While  this  is  being  done 
still  another  debt  will  probably  be  created,  if  the  experiences 
of  the  college  are  repeated.  The  institution  should  under- 
take to  raise  a  sum  to  capitalize  the  debt,  and  a  further 
amount,  payable  in  two  or  three  years,  to  pay  off  its  indebt- 
edness and  to  care  for  any  deficit  that  might  arise  while  the 
endowment  was  being  collected.  When  completely  out  of 
debt  it  should  refuse  to  spend  more  than  its  income. 

Another  illustration  is  furnished  by University, 

whose  floating  debt  equals  the  amount  of  its  endowment, 
and  whose  interest  absorbs  all  of  the  endowment  income. 
Moreover,  it  is  running  behind  regularly,  and  constantly 
adding  to  its  already  large  debt.     If  money  is  raised  to  pay 


ENDOWMENT  49 

the  debt,  the  income  from  endowment  once  more  becomes 
operative,  but  the  poUcy  is  reprehensible.  Colleges  will  do 
well  to  restrict  their  operations  to  such  activities  as  they 
can  afford.  Even  then  they  may  occasionally  have  a  defi- 
cit at  the  end  of  the  year,  but  this  will  be  small  and  should 
be  promptly  cared  for  and  not  allowed  to  remain  and  increase 
until  it  becomes  a  menace  to  the  security  of  the  institution. 

USE  OF  ENDOWMENT  CASH  FOR  CURRENT  EXPENSES 

An  even  more  insidious  use  of  endowment  for  current 
expense  arises  from  the  custom  which  prevails  in  some  colleges 
of  keeping  endowment  cash  and  current  account  cash  in  one 
bank  account  and  drawing  on  it  for  the  needs  of  the  college 
as  they  arise.  If  any  cash  belonging  to  endowment  is  on 
hand  awaiting  investment,  and  there  is  none  belonging  to 
current  account  available  for  meeting  the  monthly  pay-roll,  or 
some  other  urgent  current  expense,  the  endowment  cash  is  used 
automatically  through  the  issuance  of  regular  checks,  and 
the  investment  of  the  endowment  cash  necessarily  postponed 
until  such  time  as  the  current  account  is  in  funds.  Inasmuch 
as  many  colleges  regularly  run  in  debt  from  current  opera- 
tions, the  date  of  replacement  of  endowment  cash  is  almost 
indefinitely  postponed  or  deferred  until  by  gifts  or  special 
efforts  the  deficit  is  raised.  Where  endowment  cash  is 
used  the  trustees  sometimes  go  through  the  motion  of  being 
"fair"  to  endowment  income  by  crediting  interest  on  the 
sum  used.  This  action  on  their  part  leaves  the  situation 
just  as  it  was  before  if  the  endowment  used  is  general, 
because  the  same  sum  is  charged  to  expense  and  credited  to 
income.  But  if  it  is  restricted,  allowing  interest  on  it  adds 
to  the  deficit  and  absorbs  so  much  more  endowment  cash 
to  care  for  it. 


50  COLLEGE  AND  UNIVERSITY  FINANCE 

By  pledging  endowment  assets  as  collateral  for  current 
loans  and  using  endowment  cash  to  pay  current  bills,  the 

entire  endowment  of College  was  exhausted  and  its 

doors  closed,  and  many  other  colleges  have  been  brought 
perilously  near  the  same  fate.  Cash  belonging  to  endowment 
should  be  kept  separate  and  distinct  from  current  cash,  and 
should  not  be  deposited  in  the  same  bank  account.  This 
plan  keeps  any  endowment  cash  uninvested  available  for 
investment  as  soon  as  a  suitable  one  is  found,  and  prevents 
its  use  for  current  debts,  unless  the  authorities  of  the  college 
use  it  dehberately,  which  they  have  no  moral  or  legal  right 
to  do. 

FUNDS   SUBJECT   TO   ANNUITY 

Colleges  often  receive  for  endowment  sums  subject  to 
the  payment  of  an  annuity  during  the  Hves  of  one  or  more 
persons.  Such  funds  and  their  investments  should  be  kept 
separate  and  not  included  in  the  endowment  of  the  institution 
until  after  the  death  of  the  annuitants,  when  it  may  be  deter- 
mined how  much  of  the  sum  received  really  constitutes  a 
gift  to  endowment.  The  college  should  make  as  careful 
provision  for  the  rights  of  the  annuitants  as  the  law  requires 
of  companies  dealing  in  annuities.  Funds  subject  to  annuity 
should  not  be  invested  in  the  buildings  of  the  college;  in  fact 
the  rule  with  regard  to  investment  of  endowments,  described 
on  page  45,  applies  with  greater  force,  if  possible,  to  annuity 
funds.  Before  accepting  gifts  subject  to  annuity  the  college 
should  make  sure  that  they  can  be  carried  without  decreas- 
ing the  current  income  of  the  college.  This  rule  may  require 
a  working  fund,  which  may  be  created  by  assigning  a  ma- 
tured, unrestricted  legacy  or  annuity,  or  by  building  up  a 
reserve  from  surplus  annuity  income.    The  education  of  the 


ENDOWMENT  51 

present  generation  is  the  immediate  duty  of  the  college,  and 
it  is  not  justified  in  falhng  short  of  its  utmost  effort  in  that 
respect  in  order  that  it  may  provide  more  liberally  for  future 
generations. 

TREATMENT   OF   PLEDGES 

Pledges  and  siibscriptions  to  endowment  are  not  endovmient 
until  they  are  actitally  paid;  therefore,  they  should  not  be 
included  in  it.  Endowment  is  a  reality,  not  a  potentiaUty; 
pledges  and  subscriptions  are  potentialities.  The  amount  re- 
ported as  endowment  should  normally  increase,  but  if  uncol- 
lected pledges  were  included  in  endowment,  and  later  those 
found  to  be  of  no  value  taken  out,  the  opposite  condition 
might  arise.  A  careful  account  of  pledges  and  subscriptions  to 
endowment  should  of  course  be  kept.  But  it  is  better  to 
keep  a  special  record  for  this  piu*pose.  As  subscriptions  are 
received  they  should  be  entered  in  a  book  in  numerical  order, 
giving  the  names  and  addresses  of  the  donors,  and  the  amount 
and  conditions  of  payment  of  each  pledge.  The  pledge  card 
may  be  so  designed  that  it  can  be  used  as  a  ledger  card  and 
filed  alphabetically.  As  payments  are  received  the  details 
may  be  kept  in  a  special  cash  book  and  the  totals  transferred 
to  the  main  cash  book.  From  these  records  the  total 
amount  pledged,  the  sum  paid,  and  the  remainder  unpaid 
may  be  learned  at  any  time. 

PROCEDURE  TO  BE  OBSERVED  IN  MAKING  INVESTMENTS 

Whatever  the  special  duties  of  the  finance  committee 
of  the  college,  the  proper  investment  of  endowment  is  a 
responsibility  resting  on  every  trustee.  As  a  matter  of 
actual  practice,  it  is  often  difficult  and  inexpedient  to  call 
the  trustees  together  to  pass  upon  each  investment  proposed. 


82  COLLEGE  AND  UNIVERSITY  FINANCE 

Therefore,  the  plan  of  appointing  a  standing  committee  of 
the  board,  composed  of  three  or  more  members,  who  can 
attend  meetings  readily,  and  whose  duty  it  is  to  pass  upon 
the  sale  and  purchase  of  investments,  is  a  sensible  one. 
The  committee  should  keep  full  minutes  of  all  its  meetings, 
and  after  each  meeting  should  send  promptly  a  copy  of  the 
minutes  to  each  member  of  the  board  for  his  information. 
At  the  next  regular  meeting  of  the  board  it  should  also  report 
its  actions  for  ratification.  Every  trustee  should  realize 
that  while  for  the  sake  of  convenience  and  expedition  the 
committee  on  investment  is  charged  with  the  special  duty  of 
selecting  suitable  investments  and  of  recommending  the 
disposal  of  unsuitable  ones,  the  responsibiUty  of  each  member 
of  the  board  with  respect  to  the  trust  funds  of  the  college 
is  in  no  wise  diminished  thereby.  Moreover,  the  judgment 
and  knowledge  of  the  whole  board  are  in  the  long  run  better 
than  that  of  a  few  members. 

CUSTODY   OF   SECURITIES 

Securites  should  be  carefully  safeguarded.  They  should 
be  kept  in  a  safety  deposit  vault,  and  access  to  them  should 
never  be  had  by  fewer  than  two  persons  together.  A  copy 
of  the  by-law  providing  for  access  to  the  securities  should 
be  filed  with  the  ofl&cers  of  the  safety  deposit  company, 
who  should  be  required  to  see  that  its  provisions  are  rigidly 
observed,  and  should  be  held  accountable  for  their  observ- 
ance. The  persons  permitted  access  should  be  persons 
specifically  designated  by  the  board  of  trustees.  The 
treasurer  or  his  representative  should  always  be  present. 
A  record  of  the  securities  and  documents  to  be  deposited  or 
withdrawn  should  be  made,  and  a  copy  of  it,  signed  by  the 
persons  present,  placed  on  file.    Under  no  circumstances 


ENDOWMENT  53 

should  one  person  alone  have  access  to  the  securities,  a 
custom  which  is  now  followed  in  many  of  the  smaller  endowed 
colleges.  It  is  desirable  to  establish  and  maintain  good 
practice  even  when  the  amount  involved  is  but  small. 

Some  colleges  employ  as  custodian  of  their  securities  a 
bank  or  trust  company,  which  also  collects  the  principal 
and  interest  and  remits  them  to  the  college.  In  such  cases 
the  financial  responsibiUty  of  the  custodian  should  be  care- 
fully investigated  and  the  relation  its  own  assets  bear  to 
the  amount  of  securities  deposited  by  the  college.  The 
supervision  which  it  receives  from  the  state  or  federal 
authorities  should  also  be  a  factor  in  its  selection.  The 
trustees  should  at  any  time  make  such  count  and  audit  of 
the  securities  of  the  college  as  seems  best  to  them,  but  in 
addition  to  such  examinations,  they  should  employ  a  pubhc 
accountant  to  make  an  annual  audit  and  inspection,  and 
should  publish  the  result  of  his  examination  in  the  treasurer's 
annual  report. 


CHAPTER  V 
PHYSICAL  PLANT 

Land,  buildings,  and  equipment  acquired  and  used  for 
academic  purposes  by  an  endowed  college  come  next  in 
importance.  Since  the  European  war  the  high  cost  of  labor 
and  material  has  rendered  the  maintenance  and  extension  of 
these  facilities  a  serious  question.  How  a  college  can  keep 
its  buildings  and  campus  clean  and  attractive  and  in  a  good 
state  of  repair  without  devoting  too  large  a  portion  of  its 
income  to  that  purpose  is  a  problem  vexing  the  minds  of 
many  a  college  administrator.  There  is  some  danger  that 
of  the  total  income  of  an  institution  too  large  a  proportion 
nowadays  goes  to  maintenance,  too  small  a  proportion  to 
teachers'  salaries.  Colleges  might  well  construct  a  curve 
showing  over  a  period  of  years  the  relative  proportions  of 
total  income  that  are  devoted  to  (1)  instruction,  (2)  main- 
tenance and  upkeep,  and  (3)  administration.  A  graphic  repre- 
sentation, kept  up  to  date,  would  probably  not  be  without 
influence  on  their  poHcy.  The  graph  on  page  55  shows  con- 
ditions over  a  period  of  ten  years  at  a  well-known  institution. 
It  is  obvious  at  a  glance  that  while  the  percentage  of  income 
absorbed  by  upkeep  is  increasing,  that  devoted  to  payment 
for  instruction  is  decreasing. 

DEFINITION 

The  physical  plant  consists  of  the  land  used  for  campus, 
with  its  improvements,  and  the  buildings,  together  with 
their  furniture  and  equipment,  books,  scientific  apparatus, 
machinery,  and  tools. 

54 


PHYSICAL  PLANT 


55 


PLANT  TO  BE  CARRIED  AT  COST 

College  plant  should  be  carried  on  the  books  at  cost,  and 
the  amount  thus  carried  should  equal  and  account  in  detail 
for  aU  funds  used  in  acquiring  it.  Since  college  accounts 
should  be  the  actual  record  of  gifts,  endowments,  and  all 
other  receipts  and  their  use,  the  wisdom  of  carrying  "plant" 

Graph  Showing  Relative  Proportions  of  Income  for  Current  Pur- 
poses Devoted  to: 

1.  Instructional  Salaries 

2.  Maintenance  and  Upkeep 

3.  Administration 
Per  Cent 

of  Income 


60 
40 
30 
90 

^^ 

Sw 

s 



^ 

J 

^ 

10 

-    3 


Fiscal  \  1909  10 
Year  /1910  11 

11 

12 

13 

14 

15 

16 

17 

18 

12 

13 

14 

15 

16 

17 

18 

19 

at  actual  cost  is  apparent,  and  the  custom  which  sometimes 
prevails  of  carrying  it  at  an  estimated  value  is  to  be  depre- 
cated. In  case  any  of  the  plant  were  offered  for  sale,  the 
price  placed  upon  it  would  depend  largely  upon  what  could  be 
obtained  for  it,  and  not  upon  the  value  given  on  the  books. 
Therefore,  to  carry  it  at  cost  is  the  logical  method.  College 
plant,  in  the  course  of  time,  often  increases  in  value,  and 
there  may  be  something  gained  in  the  way  of  information 


66  COLLEGE  AND  UNIVERSITY  FINANCE 

by  occasionally  having  it  revalued  and  the  estimated  value 
shown  in  a  footnote  in  the  college  financial  report. 

A  complete  record  or  inventory  containing  a  description 
of  the  physical  plant  should  be  kept  and  revised  annually 
so  as  to  include  all  additions  and  eliminate  deductions. 
This  record  should  indicate  when  the  various  items  were 
acquired  and  their  cost.  The  cost  should  of  course  accord 
with  the  ledger  accounts. 

INSURABLE  VALUE 

The  cost  of  buildings  and  equipment  may  be,  and  usually 
is,  quite  distinct  from  their  insurable  value.  During  the  recent 
period  of  high  prices  of  building  material  and  labor,  insurance 
needed  on  college  buildings  and  equipment  was  naturally 
far  in  excess  of  their  original  cost,  and  the  fluctuating 
character  of  the  inventory  value  of  buildings  and  equipment 
reflected  this  condition.  Fire  and  tornado  insurance  should 
be  based  on  inventory  value  if  the  college  is  to  be  protected 
properly  against  losses,  a  value  which  might  differ  materially 
from  the  book  values.  The  inventory  value  should  represent 
the  cost  of  reproduction  in  identical  condition,  or,  in  other 
words,  the  cost  on  that  date  less  depreciation. 

DEPRECIATION 

All  buildings  and  equipment  depreciate  and  wear  out 
in  course  of  time.  In  a  going  concern,  plant  and  equipment 
necessary  for  its  operation  must  be  replaced  when  worn 
out  or  useless.  In  profit-making  corporations  funds  for 
replacements  are  provided  by  setting  aside  a  sum  annually 
from  income.  As  colleges  are  not  being  operated  for  profit, 
the  same  considerations  for  providing  for  replacement  of 
buildings  and  equipment  from  income  do  not  apply  to  them. 


PHYSICAL  PLANT  57 

Endowed  colleges  in  the  first  instance  have  obtained  funds 
for  plant  and  equipment  by  gifts,  and  as  a  general  rule 
their  trustees  consider  it  the  better  poUcy  to  rely  upon  the 
same  source  for  any  buildings  and  equipment  which  may  be 
needed  in  the  future.  They  are,  moreover,  so  beset  with 
difficulty  in  procuring  income  sufficient  for  the  present  needs 
that  they  are  not  interested  in  raising  funds  for  needs  of  the 
distant  future.  As  the  present  and  past  generations  have 
provided  the  existing  buildings,  it  is  neither  unwise  nor 
unfair  to  expect  future  generations  to  do  as  well. 

In  some  colleges  journal  entries  are  made  to  show  the 
estimated  amount  of  depreciation  in  buildings  and  equip- 
ment, but  a  sum  to  provide  for  it  is  not  set  aside  from 
income.  They  are,  therefore,  book  entries  only.  Unless 
the  trustees  adopt  as  their  policy  the  plan  of  providing  from 
annual  income  a  siun  equal  to  the  amoimt  of  estimated 
depreciation,  and  set  it  aside  regularly  and  invest  it  so  as  to 
provide  an  adequate  amount  when  needed,  the  entries  are 
of  no  real  value  and  may  comphcate  the  accounts.  So  long  as 
the  plant  serves  the  purposes  of  the  college  effectively  its 
present  value  is  of  little  consequence,  but  there  is  real 
information  and  accounting  value  in  keeping  the  plant  on 
the  books  at  cost.  Any  item  sold  or  destroyed  should  be 
taken  off  the  books  so  that  only  property  actually  in  the 
possession  of  the  college  should  be  included  in  the  plant 
assets. 


CHAPTER  VI 

ACCOUNTING 

The  accounting  system  of  a  college  should  be  designed 
to  meet  the  needs,  conditions,  and  ideals  which  have  been 
set  forth  in  the  preceding  chapters.  It  is  necessary  that  the 
accountant  understand  the  nature  and  purpose  of  a  college, 
what  its  peculiar  characteristics  are,  and  how  they  differ 
from  those  of  a  commercial  or  manufacturing  corporation. 
Failure  to  recognize  the  fundamental  differences  between  a 
college  and  a  corporation  organized  for  profit  has  often  led 
to  the  imposition  on  the  college  of  an  accounting  system 
suited  to  a  business  organization.  A  business  corporation 
is  established  for  the  sole  purpose  of  making  a  profit  on  the 
money  invested.  For  that  reason  its  accounts  must  be  kept 
so  that  profit  or  loss  may  be  determined,  e.g.,  proper  allow- 
ance must  be  made  for  depreciation  of  plant,  for  bad  debts, 
for  income  accrued,  and  for  accounts  unpaid — otherwise,  the 
financial  situation  cannot  be  correctly  exhibited.  Accurate 
distinction  must  be  made  between  capital  expenditures  and 
those  for  current  operation.  In  the  accounting  system  of  a 
college,  since  it  is  not  organized  for  profit,  accounting  prin- 
ciples and  practices  specially  designed  to  determine  profit  or 
loss  are  out  of  place. 

ACCOUNTING   FOR  FUNDS 

What  are  the  characteristics  of  the  endowed  college 
which  must  be  kept  in  mind  in  framing  its  accounting  system  ? 
First,  and  most  prominent,  is  the  fact  that  it  is  not  a  profit- 

58 


ACCOUNTING  59 

making  corporation  and  that  a  part  of  its  income  is  derived 
from  endowment.  Its  accounting  system  must  therefore  be 
designed  for  trust  accounts.  There  must  be  an  accurate 
record  of  each  trust,  showing  its  origin,  its  financial  history, 
its  present  condition,  and  the  manner  in  which  the  trust  is 
being  executed.  Trust  funds  should  therefore  be  kept  apart 
from  all  other  funds  and  operations  of  the  college,  their 
accounts  segregated  in  a  special  ledger,  and  their  cash 
deposited  in  a  separate  bank  account.  Three  ledger  accounts 
are  needed:  one  with  the  fund,  one  with  the  investment  of 
the  fund,  and  a  third  with  the  income  of  the  fund.  Invest- 
ments should  be  entered  at  cost  so  that  at  all  times  the 
debit  to  investment  account,  plus  cash  uninvested,  equal 
the  credit  to  the  fimd.  If  the  amounts  invested  in  bonds, 
stocks,  real  estate  mortgages,  or  real  estate,  are  needed  for 
informational  purposes  the  ledger  account  with  the  invest- 
ment of  the  fund  may  be  subdivided  accordingly.  A  Ust  of 
investments  should  be  maintained,  preferably  on  cards, 
giving  particulars  of  each  investment,  its  cost,  rate  of  income, 
date  of  matiudty,  face  or  par  value,  interest  pajnnent  dates, 
and,  if  a  mortgage,  the  property  mortgaged.  The  Hst  should 
be  kept  up  to  date  at  all  times  by  eliminating  cards  for 
investments  paid,  and  by  inserting  cards  for  investments 
made.  The  totals  of  the  cost  must  be  in  agreement  with  the 
ledger.  Before  the  end  of  each  month  a  Ust  of  interest  and 
principal  due  during  the  coming  month  should  be  taken 
from  the  cards  so  that  collections  may  be  made  promptly 
and  accurately. 

If  the  funds  are  invested  as  a  group  instead  of  individually 
the  only  difference  in  treatment  from  the  foregoing  is  that 
while  a  similar  ledger  account  must  be  kept  for  each  of 
the  funds  separately,  only  one  main  account  with  their 


60  COLLEGE  AND  UNIVERSITY  FINANCE 

combined  investment  is  needed.  In  such  a  case  the  debit  to 
investments,  plus  the  cash  on  hand,  should  equal  the  sum 
of  the  credit  balances  to  all  the  funds. 

At  stated  times,  or  as  soon  as  it  is  received,  the  income 
on  endowment  investments  should  be  paid  to  the  current 
account  of  the  college,  to  be  used  in  accordance  with  the 
conditions  attached  to  the  respective  funds.  For  con- 
venience' sake,  however,  the  ledger  accounts  with  income 
may  be  kept  in  the  current  ledger,  and  the  income  as  received 
deposited  at  once  in  the  current  bank  account. 

RECORD    OF   FUNDS 

Endowments  are  trust  funds  and  should  be  handled  and 
cared  for  in  accordance  with  the  conditions  of  the  trust. 
So  the  accounting  records  must  be  full  and  explicit  that  the 
administrators  may  always  know  exactly  what  is  required. 
The  ordinary  routine  with  respect  to  a  gift  for  endowment 
is  somewhat  as  follows : 

The  president  of  the  college  reports  to  the  board  of 
trustees  that  a  friend  offers  a  gift  for  endowment  for  a  certain 
purpose,  with  certain  conditions.  If  the  purpose  and  condi- 
tions are  acceptable  to  the  college  the  board  passes  a  resolu- 
tion formally  accepting  the  gift  with  its  conditions,  and  the 
president  is  authorized  to  acquaint  the  prospective  donor 
with  the  action.  If  some  modification  is  desired  in  the  terms 
of  the  proposed  gift  that  fact  is  communicated  to  the  donor, 
and  if  he  consents  to  the  suggestion  and  modifies  the 
terms,  the  trustees  then,  by  formal  resolution,  accept  the 
gift.  The  minutes  of  the  board  of  trustees  should  contain 
the  correspondence  respecting  the  gift  in  full  and  should 
recite  its  terms  and  conditions  and  the  resolution  of  accept- 
ance.    When  the  gift  is  paid,  a  full  descriptive  entry  should 


ACCOUNTING  61 

be  made  on  the  financial  books,  enumerating  its  conditions 
and  purpose,  and  referring  by  book  and  pages  to  the  minutes 
of  the  board  for  complete  particulars.  If  the  gift  were  paid 
in  cash  the  entry  would  appear  on  the  cash  book,  and  if  it 
were  paid  in  securities  or  property  the  entry  would  be  made 
in  the  journal.  The  correspondence  and  all  the  original 
documents  should  be  filed  away  in  safety  and  made 
easy  of  access.  It  is  exceedingly  important  that  the  history 
and  conditions  of  each  endowment  fund  be  given  so  that 
succeeding  generations  of  college  administrators  may,  with 
full  knowledge  and  understanding,  execute  the  trust  properly. 
At  present  the  records  of  endowed  colleges  are  probably 
more  deficient  in  this  respect  than  in  any  other.  A  short 
time  ago  the  treasurer  of  a  college  in  the  Middle  West 
remarked  that  he  was  going  through  the  archives  of  the 
college  for  the  purpose  of  finding  out  if  possible  how  the  funds 
of  the  college  originated  and  what  conditions  were  attached 
to  them.  He  was  also  consulting  with  the  "oldest  inhabit- 
ants" of  the  college  community  to  learn  what  they  could 
contribute  to  the  subject.  He  was  embodying  the  results  of 
his  labors  in  the  college  records  so  that  future  administrators 
would  have  in  convenient  form  all  the  information  which  he 
had  obtained.  The  researches  made  by  this  officer  are 
typical  of  what  is  being  done  at  many  of  the  older  institutions. 

FUNDS   FOR  SPECIAL   PURPOSES 

The  next  point  to  be  noted  with  regard  to  the  accounting 
needs  of  an  endowed  college  is  that  certain  funds  are  given 
to  it  for  special  purposes,  the  principal  of  which,  under 
certain  conditions,  as  well  as  the  income,  may  be  used. 
These  funds  should  also  be  kept  apart  from  the  general 
accounts  in  order  that  they  may  be  strictly  accounted  for 


62  COLLEGE  AND  UNIVERSITY  FINANCE 

and  applied  in  accordance  with  the  terms  of  the  gifts.  The 
ledger  accounts  needed  are  the  following:  one  showing  the 
amount  of  each  fund;  one  giving  the  expenditures  on  behalf 
of  each  fund;  one  with  the  investment  of  each  fund,  unless 
invested  as  a  group  (if  any  of  it  is  temporarily  invested); 
and  the  fourth,  an  account  with  income.  The  debit  to 
investment,  plus  the  debit  to  expenditures,  plus  cash  on 
hand,  should  always  equal  the  credit  to  the  fund  plus  the 
credit  to  income.  Any  uninvested  principal  and  income 
should  always  be  represented  by  cash  actually  on  hand. 
Where  the  number  of  endowment  funds  and  fimds  for  special 
purposes  is  not  too  numerous  they  may  aU  be  kept  in  one 
ledger  and  the  cash  deposited  in  one  bank  account.  If  this 
plan  is  followed  a  daily  report  should  be  made  showing  the 
amount  of  cash  on  hand  belonging  to  each  fund.  The  same 
scrupulous  care  is  required  in  recording  the  history  and 
conditions  of  funds  for  special  purposes  as  is  needed  for  those 
of  endowment  funds. 

Where  it  is  the  custom  of  the  college  to  invest  its  funds 
as  a  whole,  endowment  funds  should  be  invested  in  one 
group  and  those  for  special  purposes  in  another,  because  a 
different  set  of  considerations  should  determine  the  invest- 
ments for  each  group.  Investments  in  the  latter  group  are 
temporary,  the  object  being  so  to  invest  the  funds  as  to  get 
as  favorable  a  rate  of  interest  as  is  prudent  until  the  funds 
are  needed,  and  at  the  same  time  to  provide  for  realizing 
the  principal  promptly  without  loss  as  soon  as  required.  To 
meet  these  conditions  choice  is  hmited  to  investments  such 
as  certificates  of  deposit,  treasury  notes,  short-term  bonds, 
and  the  like,  whose  rate  of  interest  may  be  comparatively 
low.  But  as  speedy  realization  on  principal  is  not  a  necessity 
in  case  of  endowment  investments,  investments  running  for 


ACXX>UNTING  63 

a  longer  period  are  suitable.  If  the  investments  of  both 
groups  were  merged  and  the  income  divided  on  a  pro  rata 
basis,  the  plan  might  not  operate  with  equal  justice. 

Cash  transactions  of  endowment  funds  and  their  invest- 
ments, and  of  funds  for  special  purposes,  may  be  kept  to 
best  advantage  in  a  special  cash  book.  However,  they  may 
be  kept  in  the  cash  book  used  for  current  accounts  by  using 
columns  to  separate  these  transactions  from  those  for  other 
purposes,  but  the  cash  belonging  to  them  should  always  be 
deposited  in  a  separate  bank  account. 

For  ready  reference  a  special  file  or  folder  of  the  several 
endowment  funds  and  funds  for  special  purposes  is  very 
convenient  if  arranged  in  alphabetical  order,  reciting  the 
letters  of  gift  and  the  conditions  in  full,  and  referring  by 
page  and  number  to  the  minute  books  in  which  they  were 
originally  recorded. 

Thus,  the  first  requirement  of  an  accounting  system  of 
an  endowed  college  is  provision  for  a  strict  and  accurate 
record  of  its  endowment  funds,  and  of  its  funds  for  special 
purposes. 

ACCOUNTING   FOR   PLANT 

The  second  characteristic  of  college  accounting  is  the 
peculiar  relation  which  the  educational  plant  and  equipment 
bears  to  the  enterprise.  To  replace  its  educational  buildings 
by  setting  aside  annually  a  fund  from  income  for  that 
purpose  is  at  present  not  the  policy  of  an  endowed  college. 
Therefore,  there  is  no  occasion  to  make  journal  entries 
charging  income  with  the  estimated  amount  of  depreciation 
which  is  not  met  by  annual  repairs.  The  accounts  should 
show  the  money  which  has  been  expended  for  the  purchase 
of  land  and  for  erecting,  furnishing,  and  equipping  the  build- 
ings.   These  ledger  accounts  should  not  be  changed  except 


64  COLLEGE  AND  UNIVERSITY  FINANCE 

to  record  purchases  of  more  land  and  the  cost  of  erecting, 
furnishing,  and  equipping  more  buildings,  or  for  the  extension, 
improvement,  or  obliteration  of  the  present  ones.  For  a 
college,  with  its  campus  and  buildings  completed,  the  ledger 
accounts  needed  are:  "Land,"  the  debit  balance  of  which 
should  be  the  amount  paid  for  campus,  or  its  value  when 
donated;  one  with  "Buildings,"  showing  the  amount 
expended  for  their  erection;  one  with  "Furniture,"  and 
another  with  "Equipment,"  each  showing  the  actual  cost. 
These  ledger  accounts  should  be  supported  and  explained  by- 
journal  entries  or  statements  giving  in  detail  the  amount 
spent  for  each  of  the  above  objects.  The  debit  balances  of 
these  ledger  accounts  should  be  equaled  by  the  credit  balance 
of  a  ledger  account  entitled  "Plant  Capital,"  which  should 
represent  the  total  of  the  gifts,  grants,  and  appropriations 
received  and  made  for  the  acquisition  of  the  land,  buildings, 
furniture,  and  equipment.  In  many  instances  the  early 
records  of  colleges  are  defective  and  it  is  difficult,  if  not 
impossible,  to  ascertain  the  original  cost  of  plant  and  equip- 
ment. Where  such  a  condition  prevails  it  is  necessary  to 
enter  the  cost  at  an  estimated  or  appraised  value,  but  there- 
after all  new  buildings  and  their  equipment  and  any  land 
acquired  should  be  entered  at  actual  cost. 

ACCOUNTING  FOR  BUILDINGS  IN   COURSE   OF 
CONSTRUCTION 

The  buildings  of  an  endowed  college  are  usually  provided 
for  by  gifts.  The  accounts  should  show  the  exact  amount 
of  the  gifts  and  their  application.  Since  the  sum  of  money 
available  for  the  purpose  is  ordinarily  limited  in  amount, 
exact  plans  and  careful  estimates  of  cost,  together  with 
actual  contract  propositions,  should  be  obtained  before  the 


ACCOUNTING  65 

work  is  undertaken.  If  the  total  cost  equals  or  falls  within 
the  amount  of  gift  the  work  may  be  authorized,  but  if  it 
does  not  it  should  be  postponed  until  the  cost  is  reduced  by 
modifications  in  the  plans  or  until  additional  funds  can  be 
secured.  When  the  gift  is  received  it  should  be  credited  to 
a  specific  building  account  under  the  name  of  the  proposed 

building  and  called  " (Name)  Building  Fund,"  and 

included  as  a  building  fund  among  the  funds  for  "Special 
Purposes."^  As  expenditures  for  the  building  are  made 
they  should  be  charged  to  " (Name)  Building  Con- 
struction." The  amount  by  which  the  credit  balance  to 
the  fund  exceeds  the  debit  balance  to  the  construction 
account  would  be  the  amount  imexpended,  and  should  be 
found  in  cash  or  in  temporary  investments.  But  if  the  fund 
were  overexpended  the  sum  by  which  the  construction 
account  exceeds  the  fund  would  represent  the  overdraft. 
Separate  ledger  accounts  should  be  kept  with  the  furniture 
and  the  equipment  of  the  building,  and  with  the  funds  or 
appropriations  provided  for  them.  When  the  building  is 
completed,  furnished,  and  equipped  the  special  ledger 
accounts  with  construction,  furniture,  and  equipment  should 
be  closed  into  the  property  accounts,  "Buildings,"  "Furni- 
ture," and  "Equipment"  respectively,  and  the  ledger 
accounts  with  the  funds,  if  the  funds  are  exhausted,  closed 
into  the  account  "Plant  Capital" — there  to  remain  with- 
out change  until  the  building  is  demolished,  destroyed,  or 
enlarged.  If  the  funds  are  greater  than  the  actual  require- 
ments the  excess  should  be  refunded  to  the  donor,  or,  with 
his  approval,  devoted  to  some  other  purpose. 

If  it  should  happen  that  the  fund  for  building  cannot  be 
used  promptly  it  may  be  advisable  to  invest  it  temporarily 

» See  p.  61. 


66  COLLEGE  AND  UNIVERSITY  FINANCE 

in  readily  negotiable  securities,  adding  any  interest  received 
to  the  fund.  The  accounting  treatment  then  should  conform 
to  that  prescribed  for  "Funds  for  Special  Purposes."' 

The  question  is  often  raised:  If  the  ledger  accoimts 
show  the  original  cost  of  buildings,  furniture,  and  equipment, 
and  are  not  modified  to  conform  to  changing  values,  would 
it  not  be  difficult  to  estabhsh  an  insurable  value?  The 
answer  to  this  question  may  be  found  in  the  chapter  on 
"Plant."2 

When  once  the  buildings  are  erected,  fuUy  furnished 
and  equipped,  the  burden  of  keeping  them  in  condition 
is  an  expense  of  current  operation,  which  must  be  met  from 
current  income.  Its  accoimting  treatment  will  therefore  be 
described  in  the  paragraphs  relating  to  that  division  of  col- 
lege accounting. 

ACCOUNTING   FOR  CURRENT  OPERATIONS 

The  third  group  of  financial  transactions  for  which  the 
accounting  system  of  an  endowed  college  must  provide 
embraces  all  the  current  operations  of  the  college.  In  this 
group  are  included  all  transactions  not  accounted  for  under 
"funds"  and  "plant."  The  combined  result  of  the  opera- 
tions in  this  section  is  expressed  by  the  total  amount  of 
surplus  or  deficit  for  the  year.  For  the  purposes  of  adminis- 
tration, however,  the  accounts  should  be  so  designed  and 
kept  that  the  trustees  may  know  what  each  division  of  the 
college  forming  an  operating  unit  contributed  to  the  result. 
Therefore,  operating  accounts  should  be  provided  for  each 
of  the  classes  after  the  manner  enumerated  in  the  chapter 
on  "Disbursements,  "^  namely:  (1)  for  the  operating  receipts 

1  See  p.  61. 

*  See  p.  66,  "Insurable  Value." 

» See  p.  19. 


ACCOUNTING  67 

and  disbursements  for  strictly  educational  purposes;  (2)  for 
the  operating  receipts  and  disbursements  of  auxiliary 
departments;  (3)  for  the  operating  iacome  and  expenditures 
of  the  dining-halls,  dormitories,  bookstore,  and  similar 
departments  and  activities;  (4)  for  simdry  receipts  and 
disbursements  of  a  general  nature  not  included  in  the  first 
three  classes. 

THE   BUDGET 

The  budget  method  is  best  adapted  to  account  for  and 
control  the  operating  receipts  and  disbursements  for  strictly 
educational  purposes.  The  educational  work  of  a  coUege 
ought  to  be  limited  by  the  income  at  its  disposal.  Its 
opportunities  are  usually  unlimited.  If  it  conducts  its 
financial  administration  on  the  basis  of  its  opportunities, 
without  reference  to  its  Hmitations  of  income,  financial 
disaster  is  inevitable.  But  no  college  is  under  any  obligation 
to  undertake  to  render  a  service  for  which  it  cannot  pay. 
Realizing  the  importance  or  the  necessity  of  a  demand,  the 
college  may  fairly  appeal  for  funds  to  meet  it,  but  if  the  funds 
are  not  forthcoming,  the  college  has  no  right  to  incur  debt 
either  by  borrowing  money  or  by  hypothecating  inviolable 
securities.  It  would  not  be  fair  to  create  the  impression 
that  all  colleges  have  erred  in  this  matter;  still  unwisdom 
of  this  type  is  not  rare. 

The  budget  system  of  control  was  designed  to  assist 
governments  and  institutions  in  restricting  their  expenditures 
to  their  income.  In  the  case  of  a  college  it  consists  of  two 
parts:  one  part  containing  the  estimated  income;  the  other 
containing  the  appropriations  for  the  estimated  expenditures. 

A  classification  of  income  as  to  sources  must  first  be  made, 
and  then  a  careful  estimate  of  the  amount  of  income  which 


68  COLLEGE  AND  UNIVERSITY  FINANCE 

may  be  expected  from  each  source.    For  a  college  of  liberal 
arts  the  following  classification  of  income  is  suitable : 

BUDGET  INCOME 

A.  For  strictly  educational  purposes 
I.  From  student  fees 

1.  Matriculation 

2.  Tuition 

3.  Graduation 

4.  Laboratory 

5.  Incidental 

6.  Library  fees  and  fines 

7.  Locker 

8.  Miscellaneous 

II.  From  endowment  investments 

1.  Income  for  general  purposes,  unrestricted 

2.  Income  for  general  purposes,  restricted 
a)  President  (Laing  Fund) 

6)  Maintenance  of  buildings 

(1)  Science  Hall 

(2)  Observatory 
c)  Professorial  chairs 

(1)  Latin— EUery  Fund 

(2)  Mathematics — Hannan  Fund 

III.  From  gifts  and  grants 

1.  For  general  purposes,  unrestricted 
a)  From  North  West  Synod 

6)  From  Alumni  Association 

2.  For  general  purposes,  restricted 

a)  From  George  Walker,  for  books  for  English  Depart- 
ment 
6)  Etc. 

IV.  From  miscellaneous  sources 

1.  Rentals  of  college  buildings 

2.  Sale  of  old  materials  and  equipment 

3.  Etc. 

Total  income  for  strictly  educational  purposes  (estimated)  $. . .. 


ACCOUNTING  69 

B.  For  spiecially  designated  objects  not  a  part  of  the  strictly  educa- 
tional work 
I.  From  students 

1.  Athletic  fees  and  tickets 

II.  From  endowment  investments 

1.  Lectures — extra-curriculum 

2.  Scholarships 

3.  Student  aid 

4.  Prizes 

5.  Athletic  field  maintenance 

6.  Dormitory  Ubrary 

III.  From  gifts  and  grants 

1.  Lectures — extra-curriculum 

2.  Scholarships 

3.  Student  aid 


Total  income  estimated  for  specially  designated  objects 
Grand  total  of  income 


There  are  certain  receipts  and  disbursements  of  a  general 
nature  pertaining  to  the  current  operations  of  a  college  which 
do  not  constitute  a  part  of  the  income  available  for  the  ex- 
penses incurred  in  the  cost  of  educating  the  students.  Never- 
theless, they  are  in  the  majority  of  cases  included  by  colleges 
among  the  educational  receipts  and  disbursements,  a  proce- 
dure which  renders  it  difficult  to  learn  the  exact  cost  of 
operation  for  strictly  educational  work.  In  some  instances 
they  are  segregated  and  classified  so  that  they  may  be 
eliminated  from  the  statement  without  much  difficulty. 
This  method  is  an  improvement  upon  the  promiscuous 
inclusion,  but  it  seems  better  still,  as  given  above,  to  account 
for  these  operations  in  a  separate  section  of  the  budget 
(see  Div.  B).  Income  on  endowment  and  gifts  for  scholar- 
ships and  student  aid  are  examples.  Appropriations  should 
not  exceed  the  funds  available  for  these  purposes.    Any 


70  COLLEGE  AND  UNIVERSITY  FINANCE 

amount  unexpended  should  be  carried  forward  to  the  next 
year's  account  and  reserved  for  the  object  of  the  gift.  Fees 
paid  by  students  who  are  beneficiaries  of  scholarship  funds 
and  gifts  under  this  plan  should  be  counted  as  cash  receipts 
since  they  differ  only  in  the  respect  that  the  students  obtain 
the  funds  wherewith  to  pay  them  from  the  coUege  treasury 
rather  than  from  their  parents.  This  statement  holds  good 
whether  the  money  with  which  to  pay  his  fee  is  actually 
paid  to  the  student,  or  whether  it  is  credited  to  his  account 
by  book  entry  or  voucher. 

HOW  ESTIMATES   OF   INCOME   SHOULD   BE   MADE 

In  estimating  budget  income  certain  rules  may  be 
followed  to  advantage.  First,  and  most  important,  is  the 
rule  that  the  estimate  shall  be  conservative  and  sure  of 
realization,  unless  something  most  unusual  occurs.  If  there 
is  doubt  as  to  certain  iacome  being  secured,  it  should  not  be 
included  in  the  estimates.  Appropriations  for  expenditures 
are  made  and  obhgations  incurred  on  the  basis  of  the  esti- 
mates of  income,  which  cannot  be  fully  met  if  the  estimates 
of  income  prove  unreUable. 

STUDENT   FEES 

The  estimates  of  student  fees  should  be  the  amount 
received  from  students  for  the  last  completed  year,  unless 
the  officers  have  reasons  for  supposing  that  the  amount  will 
be  smaller.  Only  in  most  exceptional  cases  should  the 
estimate  be  placed  at  a  greater  sum,  and  the  reasons  for 
doing  so  must  be  most  convincing. 

INCOME   FROM   ENDOWMENTS 

In  estimating  income  from  endowment  investments  the 
investments  which  the  college  holds  should  be  classified  into : 
(1)  those  maturing  later  than  the  year  for  which  the  estimates 


ACCOUNTING  71 

are  being  made,  on  which  the  income  is  practically  assured; 
(2)  those  maturing  within  the  year  for  which  the  estimates 
are  being  made,  on  which  the  income  is  assured;  (3)  those 
maturing  before  the  opening  of  the  year  for  which  the 
estimates  are  being  made;  (4)  real  estate  owned;  (5)  cash 
awaiting  investment;  (6)  unproductive  investments. 

The  estimated  income  from  investments  in  Class  1 
would  be  the  sum  of  the  income  payable  on  them  during 
the  year,  less  any  provision  made  for  amortizing  premiums. 
It  wiU  be  noted  that  the  sum  to  be  given  as  the  estimate  is 
the  amount  payable  dming  the  year  rather  than  the  sum 
accruing.  As  college  expenditures  are  on  a  cash  basis  it  is 
better  to  put  the  receipts  on  the  same  basis  and  include  only 
those  items  which  are  actually  received  during  the  year  and 
which  can  be  used  to  pay  the  debts.  Thus,  a  surplus  at  the 
close  of  the  year  is  in  cash,  and  a  deficit  is  a  real  deficiency  of 
receipts.  Taking  one  year  with  another,  the  amount  of 
receipts  on  the  cash  basis  will  not  differ  materially  from  that 
on  an  accrued  basis,  while  the  amount  of  labor  included  in 
keeping  the  accounts  or-  the  former  basis  is  much  smaller. 

The  estimated  income  on  securities  in  Class  2  would  be 
the  amoimt  of  income  payable  during  the  year  on  the  invest- 
ments then  held,  plus  the  estimated  income  payable  on  the 
investments  made  to  take  their  places,  less  provision  for 
amortization  of  premiums.  It  is  better  to  allow  a  little  time 
for  reinvestment,  say  a  month,  and  to  figure  a  sure  rather 
than  a  high  rate  of  interest  on  the  new  investments. 

Inasmuch  as  investments  in  Class  3  mature  before  the 
beginning  of  the  year  for  which  estimates  are  being  made, 
an  estimated  rate  of  interest  on  their  reinvestment  should  be 
allowed,  as  described  under  Class  2. 

The  estimate  of  income  to  be  obtained  from  real  estate 
owned  (Class  4)  should  be  based  upon  the  experience  of 


72  COLLEGE  AND  UNIVERSITY  FINANCE 

previous  years,  modified  by  any  known  changes  in  rentals, 
taxes,  wages,  repairs,  and  other  costs  of  operation.  Depreci- 
ation must  of  course  be  provided  for — otherwise,  the  principal 
of  endowment  would  be  dissipated. 

The  same  rate  of  return  upon  reinvestment  should  be 
allowed  on  cash  awaiting  investment  as  on  reinvestments 
in  Classes  2  and  3. 

Unproductive  investments  (Class  6)  should  include  all 
non-income-producing  investments  and  those  from  which 
income  is  doubtful.  For  them  no  estimate  of  income  should 
be  made.  If  any  of  them  become  income-producing  during 
the  year,  so  much  the  better  for  the  college.  In  case  any 
property  is  operated  at  a  loss  the  estimated  loss  must  be 
shown  as  a  deduction  from  the  total  income. 

When  the  income  on  the  several  classes  of  investments  has 
been  estimated  it  should  be  apportioned  to  the  unrestricted 
and  restricted  endowment  in  the  ratio  which  they  bear  to 
the  total,  or  on  the  basis  of  the  investments  belonging  to  each 
fund,  if  each  fund  is  invested  separately.  The  details  of  the 
estimated  income  on  investments  should  be  filed  for  reference 
and  check  when  the  income  has  been  actually  received. 
If  errors  in  estimating  have  been  made  they  may  be  located 
by  this  method,  and  should  be  avoided  in  the  future.  A 
lump  estimate  of  income  from  endowment  should  not  be 
made  under  any  circumstances.  It  is  only  by  considering 
each  investment  separately  that  an  acciu-ate  and  reUable 
estimate  can  be  obtained. 

Reference  has  been  made  to  amortization  of  premiums. 
Bonds  and  mortgages  are  frequently  purchased  at  a  premium; 
hence,  if  they  are  held  to  maturity  there  will  be  a  loss  in 
principal  to  the  amount  of  the  premium  unless  provision  is 
made  for  it  from  income  by  the  date  of  maturity.    The 


ACCOUNTING  73 

theoretical  way  to  make  this  provision  is  to  set  up  what  is 
called  an  amortization  account.^  In  actual  practice,  how- 
ever, this  plan  requires  a  great  deal  of  bookkeeping,  altogether 
incommensurate  with  the  amount  involved  in  the  case  of  a 
college.  A  simple  method  which  works  well  in  practice  is 
to  find  the  nimiber  of  years  from  the  date  of  purchase  to  the 
date  of  maturity  of  the  security,  divide  the  amount  of 
premimn  paid  by  that  number,  and  each  year  transfer  the 
amount  so  arrived  at  from  income  to  principal.  The  cash 
so  transferred  should  be  deposited  in  endowment  cash  and 
the  amount  credited  to  premium  account  in  the  endowment 
funds  ledger,  if  a  premium  accoimt  is  kept  separate;  other- 
wise, the  credit  should  go  to  the  investment  account.  The 
cash  transferred  then  becomes  available  for  investment  and 
the  income  it  produces  goes  to  the  credit  of  endowment 
income.  When  the  security  matures  the  par  value  received 
and  the  amount  of  premiiun  repaid  by  the  annual  transfers 
from  income  should  equal  the  sum  paid  when  the  security 
was  purchased.  Thus,  the  final  result  is  the  same  as  in  the 
case  of  strict  amortization,  and  the  yearly  division  of  interest 
between  principal  and  income  dififers  but  slightly,  while  the 
amoimt  of  labor  saved  is  considerable. 

ESTIMATED  INCOME  FROM   GIFTS 

Gifts  for  current  purposes  are  more  and  more  becoming 
a  common  source  of  income  for  endowed  colleges,  especially 
for  those  aJQfiliated  with  religious  denominations.  Only  gifts 
which  can  be  absolutely  counted  on  should  be  included 
in  the  estimates.    Gifts  may  be  made  for  regular  expenses 

*  Webster  defines  amortization  as  follows:  "To  extingiiish  a  premium  or  discount 
involved  in  the  purchase  of  a  security  by  periodically  charging  ofiF  a  portion  of  the 
premium  or  crediting  a  portion  of  the  discoimt  so  as  to  bring  the  value  to  par 
at  maturity,  the  transfer  being  made  respectively  from  income  to  investment,  or  vice 
veraa;  loosely,  to  brine  the  value  of  a  security  to  par  in  this  way." 


74  COLLEGE  AND  UNIVERSITY  FINANCE 

or  for  some  special  item  of  regular  expense.  The  former 
class  of  gifts  is  most  frequently  made  by  a  conference, 
synod,  or  central  body  of  the  denomination  supporting  the 
college,  or  by  the  alumni  association,  and  reflects  a  reliable 
interest  and  sustained  responsibility.  Gifts  for  special  items 
of  regular  expense  are  usually  made  by  individuals  who  are 
especially  interested  in  the  work  which  they  wish  to  aid. 

Sums  of  money  are  often  given  to  colleges  for  a  purpose 
which  the  college  does  not  consider  a  part  of  its  regular  work. 
In  such  instances  it  is  better  to  include  them  in  a  special 
section  among  the  budget  receipts  and  include  appropriations 
of  a  similar  amount  in  a  separate  section  among  the  budget 
expenditures.  By  following  this  method  the  actual  cost  of 
the  regular  work  of  the  college  is  not  obscured,  and  the  special 
work  can  be  discontinued  promptly  when  the  fund  is 
exhausted. 

Some  colleges  follow  the  custom  of  designating  as  gifts 
the  difference  between  the  estimated  expenditure  and  the 
estimate  of  assured  income.  Such  an  expectation  of  obtain- 
ing the  difference  is  more  often  based  on  hope  than  on  assur- 
ance. It  is  much  better  to  call  the  difference  "Deficiency 
of  Income,"  which  must  be  provided  for  by  additional 
income  or  gifts,  or  avoided  by  reducing  expenditures. 

ESTIMATES  OF  INCOME  FROM  MISCELLANEOUS  SOURCES 

Colleges  occasionally  rent  portions  of  their  plant. 
Certain  buildings  or  portions  may  also  be  used  for  dining- 
halls,  bookstores,  and  the  like.  In  all  such  cases  rental 
should  be  charged  for  their  use,  including  interest  on  cost 
and  depreciation  so  as  to  place  these  activities  on  a  strictly 
business  basis.  The  amount  of  rental  charged  should  be 
included  among  the  estimated  income  from  miscellaneous 
sources;   income  which  cannot  be  classified  imder  sections 


ACCOUNTING  75 

I,  II,  and  III  should  also  be  included  in  this  section.  Income 
of  items  in  Division  B  of  Budget  Income  should  be  estimated 
in  the  same  manner  as  income  from  similar  items  included 
in  Division  A. 

COMPARISON   OP  ESTIMATED   INCOME   WITH   INCOME 
RECEIVED   PREVIOUSLY 

In  making  preliminary  estimates  of  budget  income  it 
will  be  found  exceedingly  helpful  to  place  in  parallel  columns 
the  amount  of  income  actually  received  during  the  past  two 
or  three  years  from  each  source.  If  the  estimate  for  the 
coming  year  varies  appreciably  from  the  actual  income  of 
former  years  the  difference  should  be  capable  of  explanation 
and  justification.  There  should  be  no  guess  work  in  the 
estimate.  UnreHable  estimates  of  income  have  often  led 
colleges  into  trouble  which  might  have  been  avoided. 

BUDGET  APPROPRIATIONS 

After  the  amount  of  income  for  the  coming  year  has  been 
estimated,  the  next  step  in  the  process  of  budget  making  is 
to  make  a  careful  classification  of  the  expenses  of  the  college 
(strictly  educational),  if  one  is  not  already  in  use.  The 
following  classification  may  be  used  (see  chapter  on  "Dis- 
bursements," pp.  20-21): 

I.  Administration  and  general  expense 
1.  Executive 

a)  President's  office 

(1)  Salary  of  president  (Laing  Fund) 

(2)  Salary  of  secretary  and  assistants 

(3)  Office  expenses  and  supplies 
6)  Treasurer's  office 

(1)  Salary  of  treasurer 

(2)  Salaries  of  assistants  and  clerks 

(3)  Office  expenses  and  supplies 


76  COLLEGE  AND  UNIVERSITY  FINANCE 

2.  General 

a)  Publicity 

(1)  Salaries  and  wages 

(2)  Printing,  postage  and  stationery,  and  expenses 

(3)  Advertising 

(4)  Travel 

b)  Catalogues,  reports,  and  bulletins 

c)  Commencement  and  public  occasions 

d)  Appropriations  to  student  activities 

e)  Annual  audit 
/)  Miscellaneous 

II.  Operation  and  maintenance  of  physical  plant^ 

1.  Superintendence 

a)  Superintendent's  office 

(1)  Salary  of  superintendent 

(2)  Salaries  of  assistants  and  clerks 

(3)  Office  expenses  and  supplies 

2.  Heating,  lighting,  water,  and  power^ 

a)  Engineer's  ofl&ce 

(1)  Salary  of  engineer 

(2)  Salaries  of  assistants  and  clerks 

(3)  Office  expenses  and  supplies 

b)  Wages  of  power-plant  employees 

c)  Fuel  (including  freight  and  cartage) 

d)  Materials,  suppUes,  and  expense 

e)  Repairs  to  building  and  equipment 
/)   Insurance  (including  liability) 

3.  Care  and  maintenance  of  buildings 

a)  Wages  of  janitors  and  artisans 

b)  Materials,  supplies,  and  expense 

c)  Repairs  (not  included  in  a  and  b) 

d)  Insurance  (including  liability) 

'  Special  funds  for  care  and  upkeep  of  certain  buildings  must  be  expended  for 
the  purpose  provided. 

» If  a  central  power  plant  is  utilized  for  furnishing  heat,  light,  water,  and  power 
for  the  educational  and  other  departments  of  the  college,  the  proportional  amount  for 
educational  departments  of  the  College  of  Arts  only  should  be  here  included. 


ACCOUNTING  77 


4.  Care  and  maintenance  of  furniture 

a)  Wages 

b)  Materials,  etc. 

c)  Repairs  and  renewals 

d)  Insurance 

5.  Care  and  maintenance  of  grounds 

a)  Wages  of  employees 

b)  Materials,  supplies,  and  expense 

c)  Liability  insurance 

III.  Instructional 

1.  Dean's  office 

a)  Salaries  of  deans 

b)  Salaries  of  assistants  and  clerks 

c)  Office  expenses  and  supplies 

2.  Salaries  for  instruction 

a)  Department  of  Astronomy 

(1)  Professor  A.  J.  Smith 

(2)  Assistant  Professor  H.  E.  Jones 

(3)  Instructor  L.  A.  Black 

b)  Department  of  Botany 

(1)  Professor  A.  B.  Coulter 

(2)  Instructor  M.  A.  Browne 

c)  Department  of  Latin 

(1)  Professor  M.  N.  Rowe  (Ellery  Fund) 

(2)  Etc. 

d)  Library 

e)  Other  departments  in  detail,  as  above 

3.  Departmental  supplies  and  expense 
a)  Astronomy 

6)  Botany 
c)  Etc. 

4.  Departmental  equipment  and  books 

a)  Astronomy 

b)  Botany 

c)  Etc. 


78  COLLEGE  AND  UNIVERSITY  FINANCE 

IV.  Contingent  fund 

V.  For  specially  designated  objects  not  a  part  of  the  strictly 
educational  work 

1.  Lectures — extra-curriculum 

2.  Scholarships 

3.  Student  aid 

4.  Prizes 

5.  Athletic  field  maintenance 

6.  Athletics 

7.  Dormitory  library 

8.  Miscellaneous 

Grand  total  of  budget  expenditures    $ 

The  appropriations  in  Section  V  should  agree  in  amount 
with  the  income  for  the  same  purposes,  which  was  included 
in  Division  B  of  Budget  Income,  unless  the  college  desires  to 
add  from  its  own  funds  for  any  of  these  objects. 

When  the  budget  classification  has  been  determined  a 
careful  estimate  should  be  made  of  the  needs  of  the  college 
for  the  coming  year,  item  by  item,  as  given  in  the  budget 
classification.  The  data  for  the  instructional  division  are 
usually  collected  by  the  president.  The  details  for  each 
department  should  be  supplied  by  the  person  in  charge  of 
the  department,  preferably  on  a  specially  prepared  form. 
The  form  should  be  arranged  to  show  the  needs  of  the 
department  under  the  headings  of  the  budget,  viz.:  (1)  for 
instruction,  (2)  for  supplies  and  expense,  (3)  for  equipment 
and  books. 

If  the  budget  plan  is  already  in  operation  appropriations 
of  the  current  year  for  each  of  the  items  should  be  given  in 
one  column,  and  requests  for  additional  amounts  for  the 
coming  year  inserted  in  columns  parallel  thereto — those 
considered  important  in  one  column  and  those  deemed 
desirable  in  another. 


ACCOUNTING  79 

Any  suggested  reductions  in  appropriations  should  be 
entered  in  a  separate  column.  Marginal  notes  or  explana- 
tions of  the  requests  may  preferably  be  made  on  separate 
sheets.  From  the  material  thus  suppHed  the  president 
should  make  a  report  to  the  committee  on  budget  of  the 
changes  in  appropriations  which  he  approves,  classifying 
the  additions  as  "Important"  or  "Desirable."  He  may 
include  everything  asked  for  by  a  department  in  one  or 
both  of  these  classes,  or  he  may  consider  it  better  to  include 
a  portion  only.  He  may  also  add  to  the  sums  requested  for 
certain  items  and  insert  amounts  for  new  ones.  It  sometimes 
happens  that  the  salary  of  a  member  of  the  faculty  is  fixed 
in  advance  at  an  amount  which  increases  each  year.  Thus, 
it  may  be  $2,000  for  the  first  year,  $2,500  for  the  second,  and 
$3,000  for  the  third.  In  making  the  report  to  the  budget 
committee  any  increases  of  this  kind  which  have  already 
been  enacted  should  be  included  in  a  column  entitled 
"Additions  Enacted, "  because  they  must  be  cared  for  before 
any  of  the  suggested  additions  classified  as  "Important" 
or  "Desirable."- 

The  material  for  budget  estimates  for  administration 
and  general  expenses  usually  may  be  prepared  to  best 
advantage  by  the  treasurer  or  chief  accounting  officer. 
He  should  of  course  obtain  from  the  several  executive  officers 
a  statement  of  their  needs,  hsted  on  blanks  similar  to  those 
used  by  the  instructional  division.  He  should  pass  upon  the 
several  requests  and  classify  them  for  the  budget  committee, 
using  the  classffications  of  "Important,"  "Desirable,"  and 
"Deductions,"  as  described  above. 

Estimates  of  expenditures  for  the  operation  and  main- 
tenance of  the  physical  plant  should  be  prepared  by  the 
person  in  charge  of  the  buildings  and  grounds.     The  record 


80  COLLEGE  AND  UNIVERSITY  FINANCE 

of  expenditures  for  the  past  few  years,  modified  to  suit 
changing  conditions,  will  serve  as  the  basis  of  the  estimate. 
Estimates  for  repairs  and  decorations  should  be  based  on 
careful  inspection  of  the  buildings.  The  estimates  of  this 
division  should  be  sent  to  the  treasurer  or  chief  business 
ofiicer  to  be  vis^d,  classified,  and  presented  in  the  same 
manner  as  the  estimates  from  the  other  divisions. 

Whenever  estimates  of  income  from  restricted  funds 
are  included  in  the  budget  income  a  corresponding  amount 
must  be  placed  among  the  estimates  of  expenditures  for  the 
particular  objects.  If  during  the  year  the  entire  sum  is 
not  used  the  balance  remaining  must  not  be  absorbed  by 
other  general  expenses,  but  must  be  carried  forward  to  the 
next  year's  budget. 

After  the  estimates  and  recommendations  of  the  three 
divisions  have  been  received  and  reviewed  by  the  treasurer 
and  financial  officer,  and  the  details  classified  as  indicated, 
a  summary  should  be  made  of  the  estimated  income  and 
expenditures  as  revised.  The  summary  may  be  made  as 
follows: 

BUDGET  ESTIMATES  FOR  THE  YEAR 

SUMMARY 


Income: 


From  students $  90,000 

From  endowment 80,000 

a)  Unrestricted $72,000 

6)  Restricted 8,000 

From  gifts  and  grants 15,000 

From  miscellaneous  sources 2,000 

Total $187,000 


ACCOUNTING 


81 


Expenditures: 


Budget 
Appropri- 
ations 

FOR 

Present 
Year 

Additionb 

DiTIBIONB 

Enacted 

Recom'd 

by 

Depts. 

Impor- 
tant 

Desir- 
able 

Deduc- 
tions 

I.  Administration     and 

$25,000 

$1,000 

$1,500 

$1,000 

$500 

$300 

1.  Executive 

16,000 
9000 

1,000 

500 
1,000 

500 
500 

500 

300 

II.  Oi>eration  and  main- 
tenance   of    physical 

28,000 

4,500 

3.300 

700 

1.  Superintendence.. 

3,000 

16,000 
6,000 
1,000 
2.000 

500 

3,000 
800 
200 

500 

2,500 
300 

2.  Heating,   lighting, 
etc 

3.  Care  of  buildings. . 

4.  Care  of  fwniture. . 

600 
200 

III.  Instructional 

112,000 

4,000 

7,000 

2.800 

3,200 

1,000 

1.  Salaries     for     in- 
struction  

2.  Departmental  sup- 
plies and  ezi)ense. . 

3.  Departmental 
equipment  and 

92,000 
14,000 

6.000 

4,000 

5,000 
1.000 

1,000 

2,000 
300 

600 

2,000 
700 

500 

1.000 

10,000 

Grand  total 

$175,000 

$5,000 

$13,000 

$7,100 

$4,400 

$1,300 

Note — From  the  above  it  will  be  noted  that  the  sum  of  the  "Imiwrtant"  and 
"Desirable"  columns  does  not  equal  the  total  recommendations  by  departments,  the 
President  and  Treasurer  having  decided  not  to  include  some  of  the  items  recom- 
mended. 


After  the  summaries  of  estimated  income  and  expendi- 
tures have  been  made,  as  above,  supported  in  detail  by 
the  reports  for  each  division,  a  comparison  should  be 
made  of  the  total  estimated  expenditures  with  the  total 


82  COLLEGE  AND  UNIVERSITY  FINANCE 

estimated  income.     This   comparison   may   be   shown   as 
follows: 

Total  income  estimated $187,000 

Expenditures  estimated 

Budget  appropriations  for  present  year.  .  .  .$175,000 
Add 

Items  enacted 5,000 

$180,000 
Less 

Deductions 1,300  178,700 

Amount  of  income  available  for  additions $    8,300 

"Important"  items  recommended 7, 100 

Amoimt  of  income  available  for  "Desirable"  items $     1 ,200 

Of  which  there  are 4,400 

Leaving  of  "Desirable"  items  unprovided  for $     3,200 

From  such  a  smnmary  as  the  foregoing  it  may  readily  be 
seen  whether  the  income  estimated  is  sufficient  to  care  for 
the  estimated  needs,  and  if  not  to  what  extent  it  falls  short. 

A  summary  should  be  made  in  like  manner  for  the  items 
in  Division  B  of  Budget  Income  and  Section  V  of  Budget 
Expenditures,  covering  income  and  expenditures  for  items 
not  a  part  of  the  strictly  educational  work,  and  the  totals 
included  in  the  complete  budget. 

If  the  budget  for  the  coming  year  is  presented  to  the 
committee  on  budget  in  detail  and  in  summary  by  the 
method  here  suggested  the  committee  may,  with  Uttle 
difficulty,  learn  of  the  several  recommendations  in  detail 
and  have  a  basis  for  deciding  what  should  be  eliminated  from 
the  "Important"  and  "Desirable"  items,  if  the  income  is 
insufficient  for  all.  Naturally,  items  in  the  "Desirable" 
column  would  be  among  the  first  to  be  excluded. 


ACCX)UNTING  83 

A  portion  of  the  estimated  income  should  be  reserved 
for  contingencies,  under  the  title  of  "Contingent  Fund"  to 
provide  against  an  unexpected  shrinkage  in  income,  and  for 
unforeseen  expenditures. 

After  the  committee  on  budget  has  carefully  studied 
the  estimates  of  income  and  the  needs  of  the  institution  for 
the  coming  year,  it  should  incorporate  its  suggestions  in  a 
completed  budget  and  recommend  it  to  the  board  of  trustees 
for  adoption.  The  board  of  trustees  should  give  careful 
attention  to  the  recommendations  of  the  committee  on 
budget,  and  before  approving  the  budget  should  assure 
itself  that  the  estimates  of  income  had  been  conservatively 
made  and  that  the  appropriations  for  expenditm-es  were 
likely  to  prove  adequate  to  the  needs  of  the  institution  and 
that  no  expenses  which  would  have  to  be  incurred  had  been 
omitted. 

METHOD  OP  BUDGET  ACCOUNTING  AND  CONTROL 

When  the  budget  has  been  adopted  by  the  board  of 
trustees  its  appropriations  become  available  for  the  expenses 
of  the  year  stated.  Every  department  should  be  required 
to  keep  its  expenditures  within  the  limits  of  its  appropria- 
tions. As  a  means  to  this  end  a  ledger  account  should  be 
opened  with  each  item  in  the  budget.  If  the  number  of 
budget  items  is  large  enough  it  may  be  better  to  have  a 
ledger  for  the  purpose,  but  if  not,  the  accoimts  may  be  opened 
in  the  general  accoimts  ledger,  a  portion  being  devoted  to 
this  use.  If  a  portion  of  the  general  ledger  is  used  for  budget 
accounts  it  will  be  necessary  to  keep  a  supplementary  record 
of  requisitions  issued.  The  use  of  requisitions  is  described 
below.  The  ledger  accounts  which  record  income  receipts 
need  no  explanation.    The  ledger  accounts  for  expenditures, 


84 


COLLEGE  AND  UNIVERSITY  FINANCE 


however,  differ  in  some  respects  from  the  ordinary  in  that 
they  should  record  the  requisitions  approving  the  incurring 
of  expenditures.  For  a  complete  control  of  expenditures 
limited  to  the  amount  of  appropriation  the  record  of  bills 
paid  is  not  adequate.  It  is  necessary  to  exercise  control  at 
the  point  where  the  expense  is  authorized.  This  control 
is  exercised  most  effectively  by  requiring  every  department 
to  make  requisition  for  proposed  expenditures,  giving  details 
and  estimates  of  cost  based  on  catalogue  prices  or  certified 
to  by  the  purchasing  agent,  which  requisitions  should  be 
approved  by  the  treasurer  or  administrative  officer  before 
the  expense  is  incurred.  Requisitions  should  not  be  approved 
if  the  appropriations  for  them  are  insufficient.  In  such  cases 
the  board  of  trustees  may  be  asked  to  increase  the  appropria- 
tion if  the  need  is  urgent.  The  ledger  account  should  show  at 
all  times  the  balance  of  the  appropriation  available  for  future 
expenses.  This  balance  is  found  by  adding  the  expenditures 
made  to  date  to  the  amount  of  requisitions  unfilled  and  sub- 
tracting their  sum  from  the  total  appropriation.  In  order 
to  give  these  data  most  conveniently  the  ledger  accounts 
with  the  budget  expense  items  should  be  entered  on  specially 
ruled  sheets  divided  in  parallel  columns  somewhat  as  follows : 


Requisitions 

EXPENDITUBES  PaID 

Appbopbiations 

Date 

Num- 
ber 

Estimated 
Cost 

Actual 
Cost 

Date 

For 

Dr. 

Cr. 

Date 

Dr. 

Cr. 

Balance 

The  amount  of  appropriation  should  be  entered  to  the 
credit  of  "Appropriations,"  and  the  amount  of  any  changes 


ACCOUNTING  85 

in  it  subsequently  entered  in  the  "Dr."  and  "Cr."  columns. 
The  amount  in  the  column  headed  "Balance"  will  be  the 
total  of  the  appropriation  at  that  time.  As  requisitions  are 
approved  they  should  be  recorded  under  "Requisitions." 
Payments  made  should  be  entered  imder  "Expenditures 
Paid" — "Dr."  and  the  amoimt  distributed  to  the  respective 
requisitions  in  the  column  headed  "Actual  Cost."  If  the 
actual  cost  differs  from  the  estimated  cost,  the  total  of  the 
latter  column  should  be  adjusted  to  the  actual  expense  by 
adding  or  deducting  the  difference.  If  this  adjustment  is 
made  regularly  and  promptly  the  amount  of  appropriation 
available  may  be  found  by  deducting  the  total  of  the  column 
"Estimated  Cost"  from  the  amount  in  the  column  "Balance" 
of  appropriations. 

Expenditures  for  salaries  are  usually  authorized  for  the 
entire  year  in  advance  and  may  be  covered  by  one  requisition. 
It  is  not  necessary  to  make  requisitions  for  every  small  item 
of  expense.  A  blanket  requisition  may  be  made  by  every 
department  covering  its  sundry  small  needs  for  an  entire 
month. 

The  budget  method  of  control  here  detailed  makes  it 
possible  to  keep  a  constant  check  on  expenditures,  and  to 
ascertain  before  expenditures  are  authorized  whether  there 
will  be  money  to  meet  them.  Each  department  may  learn 
the  status  of  its  appropriations  at  any  time  and  at  stated 
times  the  trustees  and  ofl&cers  may  be  informed  of  the 
progress  and  condition  of  the  budget  income  and  expendi- 
tures as  a  whole. 

BUDGET  REVISION 

Criticism  is  sometimes  made  of  the  budget  plan  of 
operation  on  the  ground  that  it  is  inflexible,  does  not  provide 


S6 


COLLEGE  AND  UNIVERSITY  FINANCE 


for  unforeseen  contingencies,  and  ties  the  hands  of  the  college 
officers  by  making  rigid,  specific  appropriations  before  the 
opening  of  the  year  so  that  they  cannot  cope  with  changing 
conditions  as  they  appear.  Whether  this  criticism  is  justified 
depends  upon  the  wisdom  exercised  in  making  and  in  operat- 
ing the  budget.  As  has  been  stated  already,  the  budget  is 
devised  to  enable  college  authorities  to  limit  their  expendi- 
tures to  their  income.  If  this  income  is  correctly  estimated, 
appropriations  made  within  it,  and  care  then  taken  that  no 
appropriation  is  overexpended,  there  can  of  course  be  no 
deficit.  An  equation  is  thus  established  between  the  esti- 
mated income  and  the  expenses  before  the  opening  of  the 
year.  It  is  almost  inevitable  that  changes  unforeseen 
will  occur  in  income,  and  that  expenses  will  not  be  exactly 
as  they  were  forecast.  To  adjust  the  budget  to  these 
changing  conditions  and  to  let  it  serve  adequately  it  should 
be  revised  periodically  during  the  year.  The  experience  of 
the  year  to  date  should  be  taken  as  the  basis  of  each  revision, 
and  in  the  Hght  of  that  experience  an  estimate  made  in 
detail  for  the  remainder  of  the  year.  Every  item  in  the 
budget  should  be  considered  and  note  made  of  the  amount 
of  any  probable  variation  from  the  original  estimate.  A  list 
of  variations,  in  detail  and  in  summary,  should  be  made, 
using  a  form  designed  as  follows,  or  somewhat  similar: 


Division 

Item  No. 

Name  op 
Account 

Obiqinal 

Estimate 

Pkesent 
Estimate 

Variations  fbom 
Original  Estimate 

Plus 

Minus 

The  items  should  be  totaled,  first  by  departments,  next 
by  divisions,  and  then  the  sum  totals  reached.    The  result 


ACCOUNTING  87 

of  each  revision,  supported  by  the  detailed  statements,  may 
be  shown  clearly  in  the  following  manner: 

REVISION  OF  BUDGET  FOR  1920-21  ON  OCTOBER  15 

Income: 

Original  estimate $187 ,  000 

Add  total  estimated  variations  in  excess  of 

original  estimate 12,000 

$199,000 
Deduct  total  estimated  variation  less  than 

original  estimates 3,940 

Total  income — present  estimate $195,060 

Expenditures: 

Original    estimates,    including    contingent 

fund $187,000 

Add  total  excess  of  variations  from  original 

estimates 5,500 

$192,500 
Deduct  total  amount  of  variations  less  than 
original  estimates 4,280 

Total  expenditures — ^present  estimate 188,220 

Net  surplus — ^present  estimate $    6,840 

From  such  a  summary  it  may  be  observed  that  certain 
appropriations  are  inadequate,  that  others  are  larger  than 
needed,  and  that  the  total  expenses  for  the  year  will  exceed 
the  appropriations  by  $1,220  according  to  present  estimate. 
It  may  also  be  noted  that  from  present  indications  the  income 
will  be  $8,060  more  than  originally  estimated,  sufficiently 
large  to  care  for  the  excess  in  expenditures  and  leave  a 
remainder  of  $6,840.  The  board  of  trustees  should  there- 
fore be  asked  to  substitute  the  budget  as  revised  on  Octo- 
ber 15  for  the  original  one.    If  instead  of  the  favorable  result 


88  COLLEGE  AND  UNIVERSITY  FINANCE 

shown  above  the  revised  estimates  indicate  that  the  expenses 
are  likely  to  exceed  the  income,  steps  should  be  taken  at  once 
to  reduce  them — a  task  which  may  be  undertaken  with  some 
promise  of  success  because  begun  in  time.  If  it  be  found 
impossible  to  make  savings  in  expenditures  the  board  should 
endeavor  to  increase  the  income.  Through  the  instrumen- 
taUty  of  periodic  revisions  trustees  and  officers  may  learn  the 
probable  financial  situation  early  enough  to  avoid  a  deficit. 
They  are  also  able  to  adjust  the  budget  to  changing  circum- 
stances. 

The  budget  should  be  revised  at  least  twice  a  year. 

CLOSING  THE   BUDGET 

At  the  end  of  the  year  the  several  budget  income  and 
expenditure  accounts  (with  the  exception  of  unused  portions 
of  income  provided  for  special  objects,  which  should  be 
carried  forward)  should  be  closed  into  "Surplus  or  Deficit" 
account.  The  surplus,  if  any,  may  be  used  as  the  trustees 
desire,  or  be  reserved  for  future  contingencies;  the  deficit, 
if  any,  should  be  raised  iromediately  if  at  all  possible. 

A  budget  made  on  the  plan  described,  administered  with 
care  and  inteUigence,  expenditures  being  authorized  before 
indebtedness  is  incurred,  and  periodic  revision  being  made, 
will  be  found  an  effective  means  of  controlhng  expenses. 

In  conclusion: 

1.  A  budget  consists  of  two  parts:  (a)  the  estimates  of 
income;  and  (6)  the  appropriations  for  expenditures. 

2.  It  should  be  divided  into  sections  on  the  basis  of  the 
chief  functions  of  the  college. 

3.  It  should  be  made  in  advance  of  the  period  in  which 
it  becomes  operative. 

4.  The  estimates  of  income  should  be  on  a  conservative 
basis. 


ACCOUNTING  89 

5.  Appropriations,  as  a  general  rule,  should  not  exceed 
the  amount  of  estimated  income. 

6.  A  contingent  fund  should  be  set  aside  from  the  esti- 
mated income  to  aUow  for  any  unexpected  shrinkage  in 
receipts,  and  to  provide  for  unforeseen  expenses. 

7.  Requisitions  for  expenses  should  be  made  and 
approved  before  obligations  are  incurred. 

8.  Periodic  revision  of  estimates  of  income  and  expenses 
should  be  made  during  the  year,  and  adjustments  made  in 
accordance  therewith. 

ACCOUNTING   FOR  AUXILIARY  DEPARTMENTS 

In  many  institutions  certain  activities  or  departments, 
such  as  the  schools  of  music  and  of  art,  stand  on  a  different 
basis  from  other  regular  departments.  They  may  be  con- 
ducted with  the  expectation  of  yielding  a  profit  to  the  college, 
or  at  least  without  causing  it  any  expense.  In  order  to  show 
the  actual  results  of  their  operations  and  to  avoid  obscuring 
the  cost  of  the  college  of  hberal  arts,  the  accounts  of  such 
activities  or  departments  should  be  kept  separate.  But  the 
budget  plan  should,  of  coiu^e,  be  adhered  to.  The  classifi- 
cation of  receipts  and  expenditures  may  follow  the  general 
divisions  and  items  used  in  the  college  budget,  omitting  the 
items  which  are  not  appHcable  to  the  special  department 
and  inserting  others  which  are  peculiar  to  it.  The  same 
budget  principles  should  be  observed;  estimates  of  receipts 
and  expenditures  should  be  made  in  advance;  requisitions 
should  be  approved  before  expenses  are  incurred;  periodic 
revisions  should  be  made;  ledger  accounts  should  be  kept 
with  the  items  of  the  budget;  and  reports  should  be  made 
regularly  to  the  officers  and  trustees,  showing  the  financial 
conditions  of  the  department.  All  legitimate  charges  of 
operation,  which  in  this  case  should  include  provision  for 


90  COLLEGE  AND  UNIVERSITY  FINANCE 

depreciation  of  plant  and  equipment,  should  be  included  and 
credit  given  for  services  rendered  to  other  departments  or 
officers  of  the  college. 

Any  profit  made  may  be  applied  as  follows:  (1)  to  pay 
obligations  secured  by  the  college  credit  and  to  repay  advances 
made  from  the  general  fund  of  the  college;  (2)  to  create  a 
reserve  for  expansion  of  the  department,  or  for  contingencies, 
and  to  provide  against  future  deficits;  (3)  to  assist  the 
college  in  its  educational  work,  or  for  any  other  purpose 
thought  advisable  by  the  board  of  trustees. 

Should  the  department  be  conducted  any  year  at  a  loss 
it  should  be  cared  for  from  accumulated  surplus  or  reserve, 
if  there  be  any,  or  carried  in  suspense  as  a  charge  against 
subsequent  profits,  or  paid  from  the  general  funds  of  the 
college.  The  account  should  be  accurate  and  complete  so 
that  the  financial  situation  may  be  shown  clearly  and 
definitely. 

ACCOUNTING   FOR  DINING-HALLS,   DORMITORIES,    ETC. 

The  third  group  into  which  current  operations  are 
divided  includes  dining-halls,  dormitories,  bookstores,  and 
similar  enterprises.  Inasmuch  as  they  are  usually  operated 
on  the  theory  that  they  shall  be  at  least  self-supporting  the 
accounts  should  be  so  arranged  and  kept  that  the  authorities 
may  know  whether  they  have  completely  paid  their  own  way. 
Ledger  accounts  should  be  kept  with  the  receipts  and  dis- 
bursements so  as  to  show  the  principal  kinds  of  each.  All 
costs  of  operations  must  be  included,  such  as  heat  and 
light,  rent,  repairs,  depreciation,  and  administration,  whether 
furnished  directly  or  indirectly,  and  proper  credit  given  for 
meals  and  supplies  furnished  to  officers,  teachers,  and  guests. 
The  profits  should  be  applied  to  repay  the  college's  advances 


ACCOUNTING  91 

for  stock  and  equipment,  until  fully  repaid.  After  that  has 
been  done  they  may  be  reserved  for  the  use  and  extension  of 
the  department  itself,  or  for  any  of  the  expenses  of  the  college. 
Accounting  for  these  activities  presents  no  unusual 
features  requiring  comment  other  than  that  there  be  emphasis 
on  the  need  of  including  all  receipts  and  expenditures,  both 
direct  and  indirect. 

ACCOUNTING  FOR  SUNDRY  RECEIPTS  AND   DISBURSEMENTS 
OF   A   GENERAL   NATURE 

There  are  certain  transactions  pertaining  to  college 
operation  which  do  not  fall  into  any  of  the  three  groups 
heretofore  described.  They  form  a  group  by  themselves. 
Accounts  with  stores,  consumable  material,  accounts  re- 
ceivable, and  accounts  payable,  in  fact  all  accounts  which 
show  the  amount  of  the  college's  current  assets  and 
current  liabihties  fall  into  this  group. 

To  conclude,  accounting  needs  of  an  endowed  college  will 
be  met  by  arranging  and  classifying  the  accounts  to  accord 
with  the  three  general  divisions  into  which  the  financial 
transactions  fall,  viz.:  (1)  funds  and  their  investment;  (2) 
plant  and  equipment  funds  and  their  use;  (3)  current 
operations. 

Accounts  of  each  division  should  be  kept  separate,  those 
in  division  (1)  in  a  special  set  of  books  and  the  cash  deposited 
in  a  separate  bank  account;  accounts  for  divisions  (2)  and 
(3)  may  be  kept  in  one  set  of  books  and  their  cash  deposited 
in  the  general  account,  except  that  gifts  for  new  buildings 
and  equipment  should  be  kept  under  division  (1),  classified 
as  "Funds  for  Special  Purposes"  until  expended,  the  cash 
meanwhile  being  kept  in  the  bank  account  for  "  Endowment 
and  Funds  for  Special  Purposes." 


92  COLLEGE  AND  UNIVERSITY  FINANCE 

Accounts  of  division  (3),  (current  operations)  should  be 
divided  into  four  groups :  (a)  containing  the  income  and  the 
expenditures  of  the  college  for  educational  purposes  and 
operated  and  controlled  by  the  budget  system;  (6)  containing 
the  income  and  expenditures  of  special  music  and  art  schools 
and  operated  and  controlled  by  the  budget  system;  (c) 
containing  the  financial  transactions  of  the  undertakings  of  a 
business  character;  (d)  containing  the  financial  transactions 
for  sundry  general  purposes  which  do  not  fall  in  groups 
(a),  (&),  and  (c). 

BALANCING  AND   CLOSING  THE   LEDGERS 

The  ledgers  should  be  balanced  regularly,  at  least  once 
a  month,  and  the  accuracy  of  every  account  proved,  especially 
accounts  with  funds  and  with  their  investments.  The  latter 
may  be  determined  by  using  the  equation  previously  men- 
tioned, viz. :  Investments  plus  cash  on  hand  must  equal  the 
fund.  It  is  imperative  that  this  equation  be  maintained, 
and  if  at  any  time  such  is  not  the  case  the  difference  must  be 
discovered  and  adjusted  at  once.  There  will  be  very  httle 
chance  of  error  or  difference  if  the  cash  belonging  to  "En- 
dowment and  Funds  for  Special  Purposes"  is  kept  separate 
from  general  account  cash.  Reports  of  the  financial  con- 
dition of  the  college  should  be  furnished  preferably  monthly, 
but  at  least  quarterly,  to  the  ofl&cers  and  trustees.  The 
form  and  arrangement  of  reports  will  be  discussed  in  a 
subsequent  chapter. 

At  the  end  of  the  fiscal  year  the  books  should  be  closed 
in  order  that  the  financial  result  of  the  year's  operation  may 
be  learned.  The  ledger  accounts  with  "Funds"  and  with 
"Plant  and  Equipment,"  representing  as  they  do  assets  and 
liabilities  of  a  fixed  nature,  remain  open  since  they  are  of 


ACCOUNTING  93 

a  continuing  character  and  do  not  concern  the  current  opera- 
tions of  the  year.  The  ledger  accounts  in  division  (3), 
(current  operations),  should  be  closed  into  "Siu*plus  and 
Deficit  Account"  (with  the  exception  of  the  real  accounts 
representing  current  assets  and  current  liabihties)  so  as  to 
determine  the  financial  results  of  operations  for  the  year, 
and  to  start  the  next  year's  account  with  a  clear  slate. 
The  profit  or  loss  on  each  operating  unit  or  division  should 
be  shown  separately. 

After  the  books  are  closed  for  the  year  reports  showing 
the  financial  history  for  the  year  and  the  financial  condition 
of  the  college  at  the  end  of  the  year  should  be  made.  For 
form  and  arrangement  of  the  annual  financial  reports  see 
chapter  viii,  page  105. 

PURCHASING 

The  increasing  annual  expenditure  for  books,  apparatus, 
furniture,  and  other  college  supplies  necessitates  increased 
care  and  skill  in  placing  purchase  orders.  Greater  effective- 
ness will  be  secured  if  purchases  are  considered  from  the 
college  point  of  view,  and  not  from  that  of  the  departments. 
For  example,  the  apparent  need  for  additional  microscopes 
and  other  equipment  may  be  reduced  or  eliminated  by  chang- 
ing class  hours  to  permit  a  more  continuous  use  of  existing 
apparatus  and  equipment. 

In  purchasing  laboratory  and  other  college  equipment  it 
is  well  to  bear  in  mind  that  the  most  essential  college  equip- 
ment is  now  quite  well  standardized  and  its  price  is  gradually 
becoming  subject  to  competition.  The  purchase  of  specially 
made  equipment  is  seldom  justified,  and  oftentimes  the  best 
illustrative  equipment  for  lecture  use  can  be  made  with  a 
small  expenditure  for  material  through  the  ingenuity  of  the 


94  COLLEGE  AND  UNIVERSITY  FINANCE 

faculty  member  concerned  or  in  a  college  shop.  So-called 
home-made  laboratory  equipment  is  more  apt  to  develop 
initiative  on  the  part  of  the  student  than  manufactured 
apparatus. 

In  placing  orders  with  firms  and  individuals  the  relation 
of  the  college  to  its  community  and  constituency  must  be 
recognized.  At  the  same  time,  economy  of  expenditure 
requires  the  maximum  return  for  every  dollar  spent.  This 
dual  obligation  can  be  recognized  by  placing  orders  with 
merchants  and  dealers  of  the  college  community  only  after 
it  has  been  ascertained  that  they  can  be  placed  there  as 
economically  as  elsewhere. 

Placing  purchase  orders  should  not  be  regarded  as  an 
incidental  clerical  task,  but  rather  as  one  calling  for  a 
thorough  knowledge  of  the  institution's  needs,  and  of  the 
possible  sources  of  supply  and  market  conditions.  If  mate- 
rials are  purchased  in  large  quantities,  quite  possible  when 
information  is  gathered  as  to  the  annual  needs  of  the  college 
before  placing  orders,  better  terms  can  be  secured  than 
can  be  obtained  by  purchasing  for  the  departments  sepa- 
rately. 

Files  of  catalogues  and  price  lists,  and  properly  designed 
records  and  forms  will  facilitate  purchasing.  It  goes  without 
saying  that  the  purchase  of  supplies  and  equipment  cannot 
be  delegated  promiscuously  to  any  member  of  a  college  staff. 
Negotiations  for  purchases  should  not  be  undertaken  without 
authority  from  the  trustees,  either  through  budget  authori- 
zation, or  by  specific  or  general  action.  After  authorization 
has  been  obtained,  it  may  be  advisable  to  have  the  department 
concerned  furnish  a  detailed  description  and  specifications 
of  the  material  or  apparatus  needed,  and  make  suggestions 
as  to  the  best  source  of  supply. 


ACCOUNTING  96 

To  make  purchases  efl&ciently  requires  experience. 
Therefore,  all  purchases  should  be  made  by  one  college 
oJ0&cer  and  employee  only.  An  exception  to  this  general 
rule  might  be  made  in  the  purchase  of  food  suppUes,  which 
can  better  be  intrusted  to  the  person  responsible  for  the 
satisfactory  and  economical  operation  of  the  dining-halls. 


CHAPTER  VII 
ACCOUNT  BOOKS  AND  RECORDS 

The  books  and  records  needed  by  an  endowed  college 
for  recording  its  financial  transactions  are  simple  in  character 
and  conform  in  general  to  those  used  by  other  corporations. 
The  bookkeeping  system  should  be  double  entry.  The 
principal  books  of  account  are  the  journal,  the  cash  book, 
and  the  ledger.  If  the  college  be  small,  one  set  of  books  may 
sufl&ce  for  all  its  needs,  but  ordinarily  it  is  better  to  have  a 
set  for  one  or  more  groups  of  its  financial  transactions, 
with  subsidiary  books  and  records  for  the  principal  de- 
tails. 

The  journal  is  used  as  a  book  of  original  entry  to  record 
gifts  other  than  cash,  to  make  closing  entries,  corrections, 
and  transfers  from  one  ledger  account  to  another.  A  jour- 
nal regularly  kept  in  stock  by  bookstores  will  serve  the 
purpose. 

The  cash  book  is  used  as  a  book  of  original  entry  to  record 
chronologically  aU  cash  transactions.  For  the  sake  of  con- 
venience and  of  economy  one  book  might  be  used  for  cash 
receipts  only,  and  another  one  for  cash  disbursements.  The 
classification  of  receipts  differs  from  that  of  disbursements 
and  requires  special  ruling,  and  the  space  needed  to  record 
cash  receipts  rarely  equals  that  required  for  cash  disburse- 
ments so  that  many  pages  are  wasted  if  both  receipts  and 
disbursements  are  entered  in  one  book  and  the  usual  custom 
is  followed  of  beginning  entries  on  the  first  of  each  month 
on  opposite  pages. 

96 


ACCOUNT  BOOKS  AND  RECORDS  97 

CASH   BOOKS 

There  should  be  a  set  of  cash  books  for  the  general  funds 
of  the  college,  and  another  for  endowment  and  funds  for 
special  purposes.  Receipts  from  students  may  be  entered 
to  advantage  in  detail  on  a  subsidiary  cash  book,  and  the 
total  of  each  day's  collections  transferred  to  the  main  cash 
book.  The  same  principle  may  be  followed  whenever  the 
entries  for  receipts  from  one  source  become  very  numerous. 
Thus,  when  collections  of  subscriptions  for  endowment  and 
for  buildings  are  being  made  the  details  would  better  be 
entered  in  a  special  cash  book  and  the  totals  regularly  trans- 
ferred to  the  endowment  cash  book.  The  principal  cash  book 
should  contain  all  receipts,  but  whenever  any  class  or  kind 
of  receipt  requires  many  entries  a  subsidiary  book  should  be 
used  for  the  details,  and  the  totals  only  entered  in  the  main 
cash  book. 

The  cash  books  for  disbursements  should  be  used  to 
record  the  amount  paid  and  not  to  distribute  the  charges  to 
the  respective  accounts.  For  that  purpose  a  voucher 
system  is  better.  When  the  voucher  system  is  used,  only  the 
number  of  the  voucher  check  and  the  amount  paid  need  be 
entered  on  the  cash  book,  since  the  details  of  each  payment, 
the  name  of  the  payee,  and  the  account  charged  will  be 
found  on  the  voucher  register. 

LEDGERS 

The  same  principles  should  be  observed  in  the  use  of  the 
ledgers  as  in  the  case  of  the  cash  books.  Thus,  wherever 
possible,  all  general  accounts  should  be  kept  in  one  ledger 
only,  unless  the  number  of  any  class  or  group  becomes  too 
large.  Then  a  subsidiary  ledger  should  be  used  for  details. 
A  single  ledger  will  usually  be  sufficient  for  the  accounts 


98  COLLEGE  AND  UNIVERSITY  FINANCE 

of    the   Endowment   Fund  and   Funds    for  Special   Pur- 
poses. 

VOUCHER  REGISTER 

Payments  may  be  made  to  best  advantage  by  using  the 
voucher  system.  The  voucher  describing  the  payment  and 
the  check  discharging  it  in  the  best  organized  institutions 
are  now  combined  and  known  as  the  voucher  check.  It  is 
well  to  make  the  voucher  check  in  duphcate  on  the  type- 
writer and  retain  a  carbon  copy  in  the  files.  For  the  purpose 
of  recording  and  distributing  the  payments  to  the  appropriate 
accounts  the  voucher  checks  should  be  entered  on  the  voucher 
register  and  numbered  consecutively.  All  papers  and  in- 
voices supporting  the  payments  should  be  attached  to  the 
duphcate  copy  of  the  voucher  check  and  filed  numerically. 
At  the  end  of  each  month  the  voucher  register  should  be 
totaled  and  the  totals  joumaUzed  and  posted  to  the  respective 
ledger  accounts.  A  simple  card  index  of  payments  arranged 
alphabetically  may  be  maintained,  giving  the  name  of  the 
payee,  number  and  amount  of  voucher  check,  and  date  of 
payment.  The  use  of  the  voucher  register  to  distribute 
charges  has  two  main  advantages  over  the  use  of  the  cash 
disbursement  book.  First,  it  is  possible  to  prepare  for 
payment  and  to  enter  on  the  voucher  register  all  obligations 
for  the  month  and  to  charge  the  appropriate  accounts  by 
journal  entry  so  that  the  financial  reports  will  show  the 
college's  true  condition.  When  the  cash  disbursement  book 
is  used  as  the  distributing  medium  only  the  obhgations 
which  are  actually  paid  are  taken  into  the  accounts.  If  the 
college  is  short  of  funds,  and  so  has  many  unpaid  bills,  the 
ledger  accounts  do  not  show  the  facts.  Second,  the  voucher 
register  is  usually  loose-leaf,  is  more  flexible  than  a  bound 
cash  book,  and  may  therefore  be  changed  more  readily  to 


ACCOUNT  BOOKS  AND  RECORDS        99 

accommodate  revisions  in  distribution  and  new  classifications 
of  accounts. 

The  total  amount  of  the  voucher  checks  entered  on  the 
voucher  register  each  month  should  be  posted  to  the  credit 
of  an  account  entitled  "Vouchers  Audited"  or  "Accounts 
Payable,"  and  to  the  debit  of  the  same  account  should  be 
posted  monthly  the  total  of  voucher  checks  paid,  as  shown  by 
the  disbursement  cash  book.  Any  balance  to  the  credit  of 
the  account  "Vouchers  Audited"  represents  unpaid  voucher 
checks  and  should  be  reconciled  and  balanced  with  the  unpaid 
voucher  checks  held  in  the  office. 

PAY-ROLL  REGISTER 

If  the  persons  employed  by  the  college  are  few  in  number 
they  may  be  paid  by  voucher  check  as  described  above. 
But  if  they  are  many  it  will  be  better  to  use  a  specially 
prepared  salary  check  for  the  purpose.  Salary  checks 
should  be  numbered  and  entered  on  a  pay-roll  register  to 
distribute  the  charges  to  the  accounts.  The  pay-roll  register 
should  be  totaled,  journalized,  and  posted  monthly  in  the 
same  manner  as  the  voucher  register.  The  total  amount  of 
the  pay-roll  for  the  month  should  be  posted  to  the  credit  of 
a  ledger  account  called  "Pay-roll,"  and  the  payments  for 
the  month  as  shown  on  the  disbursement  cash  book,  usually 
in  totals  only,  should  be  posted  to  the  debit  of  the  account. 
A  pay-roll  card  index,  similar  to  the  one  used  for  voucher 
checks,  may  also  be  maintained. 

STUDENT  ACCOUNTS 

Student  accounts  may  best  be  kept  by  the  card  system. 
By  a  little  ingenuity  cards  for  registration  and  ledger 
accounts  may  be  combined  and  made  to  serve  the  two 


100  COLLEGE  AND  UNIVERSITY  FINANCE 

purposes.  The  combined  card  may  be  so  constructed  that  by 
means  of  a  perforation  in  the  middle,  the  portion  of  the  card 
used  as  a  registration  record  may  be  detached  and  filed  in  the 
academic  office  as  soon  as  the  fees  are  settled,  and  the  part 
used  for  the  financial  record  retained  in  the  financial  office. 
Wherever  possible  the  sum  to  be  paid  by  the  student  should 
be  determined  by  a  person  other  than  the  treasurer,  whose 
duty  it  should  be  to  make  the  collections  and  check  the 
accuracy  of  the  charges.  In  many  colleges  a  book  is  used 
in  which  are  entered  the  names  of  the  students  arranged  by 
classes,  the  charges  against  each  for  tuition,  laboratory  fees, 
and  other  items,  and  the  payments  as  made.  When  the 
nimaber  of  students  is  small,  this  plan  may  be  used  without 
difficulty,  but  it  is  neither  so  convenient  nor  so  flexible  as 
the  card  system  and  may  become  burdensome  to  operate 
when  the  number  of  students  becomes  larger.  If  a  charge 
card,  arranged  to  serve  as  a  ledger  account  as  well,  is  used, 
and  if  students  are  required  to  pay  their  bills  in  advance,  a 
large  amount  of  work  customarily  carried  on  in  billing, 
posting,  and  collecting  is  dispensed  with.  The  card  system 
also  makes  it  possible  to  segregate  readily  the  unpaid  ac- 
counts, if  such  there  may  be. 

Numbered  receipts  should  be  given  for  payments  made 
by  students,  and  carbon  dupUcates  kept  on  file.  For  the 
sake  of  convenience  receipts  may  be  obtained  in  book  form, 
fifty  originals  and  fifty  duphcates  in  a  book.  The  duplicates 
should  be  retained  in  the  books  and  the  books  filed  in  numer- 
ical order.  The  receipt  books  may  be  utilized  as  books  of 
original  entry  and  the  student's  receipt  cash  book  used  for 
recording  the  collections  and  distributing  them  to  the  respec- 
tive earnings  accounts  by  totals,  thus  avoiding  the  need  of 
copying  each  payment  in  the  cash  book.  Where  this  plan 
is  followed,  the  reference  made  on  the  student's  ledger  card 


ACCOUNT  BOOKS  AND  RECORDS        101 

to  details  of  payment  should  be  by  receipt  number  rather 
than  by  cash-book  page. 

LOOSE-LEAF   AND   BOUND    BOOKS 

Loose-leaf  records  and  the  card  system  are  well  adapted 
to  many  phases  of  college  accounting.  As  stated  before,  the 
card  system  is  especially  suitable  for  accounts  with  students, 
which  may  be  numerous  and  usually  cover  short  periods 
only.  It  is  elastic,  flexible,  easily  arranged  in  alphabetical 
or  in  other  order,  and  may  be  readUy  kept  up  to  date  by 
eliminating  cards  for  students  not  in  attendance.  Lists 
of  scholarship  appoiatments,  of  students  rendering  service, 
of  pay-roll  data,  of  accounts  payable,  and  of  accounts 
receivable,  may  be  kept  very  satisfactorily  on  cards.  The 
loose-leaf  system  is  particularly  well  adapted  for  recording 
and  distributing  collections  from  students,  for  recording  and 
distributing  cash  received  in  branch  ofl&ces  and  business 
departments,  and  for  registering  and  distributing  voucher 
checks  and  pay-roU  payments. 

The  ledger  containing  the  accounts  with  endowment  and 
funds  for  special  purposes,  and  the  ledger  containing  the 
general  accounts  in  f uU,  or  in  totals  only,  should  be  in  bound- 
book  form  because  they  show  the  complete  financial  status 
of  the  college  and  need  to  be  preserved  intact.  The  principal 
journals  and  cash  books  in  which  appear  a  record  and  history 
of  the  receipts  of  the  college,  either  in  cash  or  in  property, 
their  conditions,  circumstances,  and  use,  for  the  same  reason 
should  be  bound  books. 

Thus  a  combination  of  card,  loose-leaf,  and  bound- 
book  systems  is  well  fitted  to  college  accounting — the 
card  and  loose-leaf  for  that  part  which  is  temporary 
and  the  bound-book  for  that  which  is  of  a  permanent 
nature. 


102  COLLEGE  AND  UNIVERSITY  FINANCE 

STATISTICAL   RECORDS 

In  addition  to  the  records  which  must  be  kept  to  show 
the  financial  history  and  condition  of  the  college,  others  of 
a  statistical  and  informational  character  may  be  used  to 
explain  and  supplement  the  data  contained  in  the  books 
of  account.  Such  data  may  be  made  exceedingly  helpful  to 
the  trustees,  oflBcers,  and  friends  of  the  institution,  and  may 
stimulate  greatly  their  interest.  They  are  also  very  useful 
in  assisting  the  administrative  ofl&cers  to  operate  the  several 
departments  as  economically  as  possible  by  acquainting 
them  with  the  details  of  cost  and  showing  where  leaks  are  oc- 
curring. There  is  scarcely  any  limit  to  the  number  and  kind 
of  statistical  reports  which  a  resourceful  and  ingenious 
financial  officer  may  furnish  to  the  trustees.  To  be  of  the 
greatest  value  such  reports  must  be  based  upon  and  be  in 
harmony  with  the  ledger  accounts. 

Statistical  reports  may  be  used  for  analyzing  the  college 
educational  expenses.  To  illustrate,  the  expenses  may  be 
classified  into: 

I.  Salaries  and  wages 
II.  Materials,  supplies,  etc. 

The  salaries  and  wages  may  be  subdivided  to  show  the 
amount  paid  to  each  rank  and  class,  as: 

1.  Instructional 
o)  Professors 

6)  Associate  professors 

c)  Assistant  professors 

d)  Instructors 

e)  Assistants 

f)  Lecturers 

2.  Administration 

a)  OflBcers 

b)  Clerks 

3.  Labor  and  unclassified  service 


ACCOUNT  BOOKS  AND  RECORDS        103 

Expenditures  for  materials  and  supplies  may  be  sub- 
divided as  follows: 

1.  Communication 
a)  Postage 

6)  Telephones  and  telegrams 

2.  Stationery  and  oflfice  supplies 

3.  Publications  and  printing 

4.  Travel 

5.  Equipment  repairs,  building  repairs 

6.  Supplies  for  instruction 

7.  General  supplies  and  expense 

8.  Rent 

9.  Interest' 

10.  Insurance 

The  capital  or  plant  accounts  may  be  divided  into : 

I.  Land  and  buildings 

11.  Equipment 

Land  and  buildings  may  then  be  subdivided  into: 

1.  Land 

2.  Buildings  and  additions 

3.  Land  improvements  other  than  buildings 

Equipment  may  be  further  divided  into : 

1.  Apparatus 

2.  Furniture  and  office  suppUes 

3.  Books 

4.  Machinery  and  tools 

5.  Museum  specimens,  and  collections 

6.  Live  stock 

In  like  manner  the  receipts  and  expenses  of  dining-halls, 
dormitories,  and  bookstores  may  be  subdivided  as  to  source 
and  kind,  and  comparison  made  with  the  same  items  for 
the  month  or  year,  or  years,  previous.    By  this  means  the 


104  COLLEGE  AND  UNIVERSITY  FINANCE 

details  of  operation  may  be  learned  and  any  unfavorable 
tendency  corrected  if  possible. 

Graphic  representation  of  statistical  data  is  now  coming 
into  very  general  use  because  it  enables  the  reader  to  obtain 
at  a  glance  the  significance  of  the  subject  presented.  He 
can  see  readily  which  of  several  columns  is  the  longest,  but 
it  requires  a  mental  effort  to  determine  which  of  several  sets 
of  figures  is  the  largest,  and  a  much  greater  effort  to  appre- 
ciate and  retain  the  amount  of  the  variation.  In  presenting 
reports  of  the  receipts  and  expenses  of  the  college,  and  of 
its  business  departments  so  as  to  show  how  they  are  related 
to  those  of  previous  years  and  the  direction  in  which  cost  of 
operation  is  tending,  the  business  officer  should  make  use  of 
curves  and  graphs  so  that  the  facts  may  be  quickly  and 
vividly  perceived. 

The  advantage  of  the  statistical  and  informational 
report  is  that  it  may  be  elaborated  or  curtailed  as  circum- 
stances require.  Its  use  may  be  discontinued  if  it  has  served 
its  purpose  as  respects  some  one  department  and  devoted 
to  some  other  department  or  account  needing  attention. 

The  financial  officer  of  the  college  should  be  always 
alert  to  detect  any  evidences  of  excessive  cost  and  of  unwise 
expenditures.  He  will  find  that  a  judicious  use  of  statistical 
records,  showing  the  details  of  any  account  and  how  they 
compare  with  those  in  previous  periods,  will  assist  him  in 
detecting  unfavorable  tendencies,  and  will  enable  him  to 
present  them  in  an  intelligible  manner  to  the  board  of  trustees 
for  action. 


CHAPTER  VIII 
FINANCIAL  REPORTS 

ANNUAL 

The  fundamental  purpose  of  issuing  an  annual  report  of 
college  finances  is  to  have  accurate  information  regarding 
the  financial  condition  and  history  of  the  college  available 
for  distribution  among  the  trustees,  alumni,  officers,  friends, 
and  patrons  of  the  institution.  Consequently  the  officer  who 
prepares  and  presents  a  clear,  concise,  and  easily  understood 
report  does  his  institution  and  the  pubhc  a  real  service. 
The  press  keeps  the  pubUc  informed  on  those  matters  of 
educational  poHcy  and  interests  which  have  news  value,  but 
at  best  these  give  a  Umited  view  of  the  college's  real  work 
and  activities.  It  is  important  therefore  that  the  college 
keep  its  constituency  and  the  pubUc  reliably  informed  of  its 
policies  and  achievements.  The  educational  features  are 
usually  set  forth  in  the  annual  catalogue  and  in  the  report  of 
the  president,  while  the  financial  condition  and  operations 
are  disclosed  in  the  report  of  the  treasurer  or  financial 
officer.  It  is  with  the  latter  report  that  the  author  is  chiefly 
concerned. 

It  is  often  said  that  financial  reports  are  made  to  conceal 
the  situation  rather  than  to  disclose  it.  The  author  does 
not  for  a  moment  imagine  that  college  reports  are  con- 
sciously made  on  this  principle,  yet  the  effect  they  produce 
is  frequently  of  that  nature.  This  impression  is  produced 
by  poor  arrangement  of  subject-matter,  lack  of  coherence 
and  sequence,  failure  to  make  cross-references,  and  by  the 

106 


106  COLLEGE  AND  UNIVERSITY  FINANCE 

abundance  of  inconsequential  details.  The  result  is  that  the 
reader  is  confused  and  wearied.  A  carefully  prepared  and 
well-arranged  treasurer's  report,  giving  in  clear  and  orderly- 
fashion  the  jfinancial  situation  of  the  college,  its  fiscal  history 
during  the  period  under  review,  with  appropriate  comment 
and  explanation  regarding  features  of  special  interest, 
undoubtedly  will  be  welcomed.  Full  information  inspires 
confidence  and  stimulates  interest. 

CONTENTS  OF  ANNUAL  REPORTS 

A  study  of  the  annual  reports  of  many  college  treasurers 
shows  that  they  contain  subject-inatter  which  may  be 
separated  into  five  divisions:  (1)  survey  of  results  for  the 
year,  which  usually  appears  as  an  introduction;  (2)  balance 
sheet;  (3)  current  operations,  income,  and  expenses;  (4) 
gifts;   (5)  explanatory  statements  and  statistics. 

The  order  in  which  the  foregoing  divisions  appear  in  the 
several  reports,  where  any  order  is  attempted,  varies  greatly, 
but  the  arrangement  here  suggested  appears  most  logical, 
for  after  the  introduction  reciting  the  results  of  the  year's 
operations  comes  the  balance  sheet,  which  contains  in  totals 
all  the  assets  and  HabiHties  of  the  college.  It  seeks  to  give 
a  complete  picture  of  the  financial  condition  on  the  date 
mentioned,  and  by  cross-reference  may  be  made  the  key 
to  the  subsequent  explanatory  statements  and  schedules. 
After  obtaining  a  picture  of  the  financial  condition,  one  looks 
for  a  report  of  the  current  operations  for  the  year  and  the 
resulting  surplus  or  deficit.  The  report  of  current  operations 
thus  naturally  follows  the  balance  sheet.  These  are  the 
main  divisions  of  the  report  because  they  give  the  financial 
condition  of  the  college  and  the  results  and  details  of  its 
operations.    The  remaining  divisions  devoted  to  "Gifts" 


FINANCIAL  REPORTS  107 

and  to  "Explanatory  Statements  and  Statistics"  consist  for 
the  most  part  of  details  of  what  has  already  appeared  in 
totals  only  in  the  balance  sheet  and  in  the  statements  of 
"Current  Operations." 

I.      SURVEY  OF  RESULTS 

In  the  introduction  the  treasurer  should  try  to  give  in  an 
interesting  manner  an  account  of  the  financial  features  of 
special  interest  occurring  during  the  year.  The  result  of  the 
year's  operations,  the  increase  in  assets,  if  any,  and  of 
what  it  consists,  whether  of  additional  endowment  or  of  gifts 
for  buildings  and  equipment,  and  the  prospect  of  erecting 
buildings  and  other  plans  for  expansion  should  be  mentioned. 
The  principal  changes  in  income  and  in  cost  of  operation 
should  be  referred  to  and  elucidated.  The  principles  followed 
in  keeping  the  accounts  and  in  making  the  report  should  be 
explained  and  reference  made  to  the  schedule  and  page  on 
which  the  details  of  the  subjects  alluded  to  may  be  found. 
Mention  should  also  be  made  of  gifts  received,  and  comment 
made  on  those  of  especial  significance.  The  introduction 
should  serve  as  an  interpretation  of  the  report,  but  should 
not  undertake  to  re-tell  all  that  is  contained  in  it. 

II.      THE   BALANCE   SHEET 

The  balance  sheet  is  designed  to  indicate  the  financial 
situation  of  the  college  at  the  time  indicated.  It  ought 
therefore  to  show  all  its  assets  and  habilities  properly 
classified  and  arranged  in  a  manner  easily  understood.  For 
this  reason  it  is  better  to  exhibit  the  amount  of  assets  and 
habilities  in  totals  only,  and  to  rely  upon  subsequent  sched- 
ules for  details.  This  arrangement  makes  the  picture  clearer 
because  the  entire  situation  is  given  by  means  of  a  few  items. 


108  COLLEGE  AND  UNIVERSITY  FINANCE 

The  order  in  which  the  assets  and  liabilities  appear  in  the 
balance  sheet  is  of  importance.  They  should  be  arranged 
to  convey  the  information  in  the  sequence  in  which  it  is 
usually  sought.  The  first  questions  ordinarily  asked  regard- 
ing an  endowed  institution  are :  What  is  the  amount  of  endow- 
ment, in  what  kinds  of  property  and  securities  is  it  invested, 
and  what  cash,  if  any,  remains  uninvested?  The  next 
question  will  probably  be:  What  is  the  cost  of  buildings, 
campus,  and  equipment  ?  Information  as  to  the  amount  of 
current  assets  and  habUities  will  then  be  sought,  and  what 
relation  they  sustain  to  each  other,  whether  the  assets  exceed 
the  habihties,  and  whether  the  assets  are  of  a  hquid  nature. 
Finally,  inquiry  will  be  made  regarding  accumulated  surplus 
or  deficit,  and  whether  there  are  reserves  for  future  contin- 
gencies. An  illustration  of  the  order  in  which  the  items  may 
appear,  and  the  arrangement  of  the  subject-matter  in  the 
balance  sheet  is  given  on  pages  128-29. 

In  each  of  the  divisions  of  the  balance  sheet :  (1)  endow- 
ment, (2)  plant,  and  (3)  current  accounts,  the  total  debits 
and  total  credits  should  equal  each  other.  Thus,  the  sum  of 
permanent  funds  should  be  exactly  accounted  for  by  invest- 
ments of  cash  on  hand  awaiting  investment.  Capital 
provided  by  gifts  or  otherwise  for  plant — ^that  is,  for  land, 
buildings,  and  equipment — should  be  balanced  by  the 
amount  invested  in  the  college  campus,  buildings,  and 
equipment,  including  furniture  and  books,  plus  cash  on  hand 
and  temporary  investments,  if  any  unexpended  plant  funds 
are  being  held.  The  amount  of  current  funds  and  habOities, 
including  reserve  and  surplus  (if  any)  should  be  equaled  by 
current  assets,  advance  payments,  cash  on  hand,  and  deficit 
(if  any).  Cross-reference  should  be  made  to  the  numbers 
of  the  schedules  and  pages  in  which  are  given  the  details  of 
the  items  appearing  in  totals  in  the  balance  sheet. 


FINANCIAL  REPORTS  109 

The  figures  in  the  balance  sheet  must  of  course  be  taken 
from  the  books  of  account  and  represent  facts.  If  strict 
separation  of  permanent  funds,  plant  funds,  and  current 
fimds  has  not  been  actually  maintained,  if  endowment  has 
been  used  in  erecting  college  buildings,  and  if  a  portion  of 
endowment  cash  has  been  spent  for  current  expenses  of  the 
college,  or  if  building  funds  which  should  be  on  hand  have 
been  diverted,  for  a  time  at  least,  to  some  other  purpose, 
the  balance  sheet  must  reflect  the  actual  situation.  The 
best  way  to  show  in  the  balance  sheet  these  improper  usages 
and  still  preserve  the  three  divisions  is  to  indicate  among  the 
endowment  investments  in  Division  1  the  amount  of  endow- 
ment used  for  college  plant,  and  show  in  Division  2,  first,  the 
total  cost  of  plant,  and  then  deduct  the  amount  of  endow- 
ment used  for  plant  as  shown  in  Division  1.  If  endowment 
cash  has  been  used  temporarily  for  current  purposes  that 
fact  should  be  made  clear  by  showing  among  permanent 
assets  in  Division  1  the  amoimt  due  to  endowment,  and 
placing  the  sum  in  Division  3  as  a  current  liabihty.  The  use 
of  endowment  funds  for  college  buildings  and  for  current 
expense,  even  temporarily,  is  greatly  to  be  deprecated,  but 
imfortunately  the  custom  is  somewhat  prevalent,  especially  the 
use  of  endowment  cash  for  current  purposes,  and,  as  has  been 
pointed  out,  is  due  to  the  fact  that  endowment  and  current 
cash  are  carried  in  one  bank  account.  An  excellent  order 
and  arrangement  of  the  balance  sheet  cannot  overcome  a 
poor  condition  of  affairs  and  an  unwise  plan  of  operation, 
but  by  bringing  the  result  of  such  procedure  into  clear  relief 
they  may  make  the  situation  manifest,  and  so  lead  to 
improvement.  It  is  probably  safe  to  say  that  college  trustees 
in  numerous  instances  are  not  furnished  with  statements 
and  reports  which  show  clearly  the  financial  condition  and 
methods  of  the  institutions  committed  to  their  trust,  for  if 


110  COLLEGE  AND  UNIVERSITY  FINANCE 

they  were  they  would  not  rest  until  the  undesirable  features 
had  been  eUminated. 

By  adhering  to  the  order  and  arrangement  of  the  balance 
sheet  herein  suggested,  and  by  following  its  classification 
logically,  many  of  the  peculiarities  and  anomahes  which  are 
found  in  pubHshed  reports  would  be  obviated.    For  example, 

CoUege  had  received  an  interest-bearing  note  from 

a  friend  for  the  construction  of  a  swimming-pool.  The  gift 
was  included  among  plant  funds,  but  the  note  was  shown 
among  current  assets  as  a  note  receivable.  To  anyone 
familiar  with  the  situation  it  was  perfectly  evident  that  the 
proceeds  of  the  note  could  not  be  used  properly  for  the  pay- 
ment of  current  bills,  the  inference  which  would  be  drawn 

from  the  balance  sheet.    At University  the  treasurer 

had  included  students'  tuition  notes  among  endowment 
investments  because  they  bore  interest  and  were  income- 
producing.  If  he  had  accounted  accurately  for  the  endow- 
ment he  would  have  discovered  that  the  students'  notes  were 
in  no  way  related  to  it.  Moreover,  the  confusion  as  to  what 
constitutes  endowment  would  be  avoided  and  the  custom  of 
including  building  funds  among  endowment,  which  is  some- 
times followed,  would  be  prevented  by  following  this  order 

and  arrangement.    In College  report  a  fund  which 

was  being  accumulated  for  the  erection  of  an  art  building  was 
called  building  endowment,  and  included  in  endowment. 
Under  the  plan  herein  suggested  it  would  have  been  classified 
without  question  in  Division  2  as  a  building  fund. 

III.      CURRENT  OPERATIONS 

The  third  division  of  the  report  should  contain  the 
statements  of  current  operations  for  the  year.  First  of  all 
should  be  given  the  surplus  or  deficit  account,  in  which  should 


FINANCIAL  REPORTS  111 

be  shown  the  surplus  or  deficit  of  each  of  the  several  divi- 
sions of  the  college  operated  as  a  separate  unit.  The  amount 
of  the  difference  between  the  total  of  the  surpluses  and  the 
total  of  the  deficits  will  be  the  net  surplus  or  deficit  of  the 
college  for  the  year.  In  subsequent  tables  and  schedules 
the  details  of  income  and  expense  for  each  operating  unit 
should  be  listed.  Thus,  the  income  and  expenses  of  the  col- 
lege for  educational  work  should  be  detailed  in  one  state- 
ment. Separate  statements  for  each  of  the  business  and 
self-supporting  departments  of  the  college,  such  as  the 
dormitories,  dining-halls,  bookstore,  and  school  of  music, 
containing  particulars  as  to  their  income  and  expenses, 
should  then  follow,  care  being  taken  to  see  that  all  legitimate 
charges  have  been  made,  including  those  for  heat  and  light 
from  the  central  power  plant,  and  rent  for  space  used. 
A  very  great  diversity  exists  in  reporting  current  operations. 
They  are  frequently  combined  in  one  statement  in  such  a 
way  that  it  is  impossible  to  determine  whether  the  dormi- 
tories, dining-halls,  bookstore,  and  separate  schools  have 
been  conducted  at  a  profit,  or  whether  they  have  been  an 
expense  to  the  college.  In  other  instances,  separate  reports 
are  made  of  these  departments,  but  more  or  less  incompletely. 
Sometimes  no  charge  is  made  for  heat  and  fight  from  the 
central  power  plant,  nor  for  the  use  of  space,  nor  for  depreci- 
ation.    In  other  cases,  only  one  or  another  of  these  items 

is  included.     In  the  report  of  College  all  current 

operations  were  included  in  one  statement  and  the  items 
arranged  in  alphabetical  order,  probably  the  most  illogical 
and  uninforming  method  possible. 

It  is  of  the  utmost  importance  for  the  trustees  and 
friends  of  the  college  to  know  what  is  the  expense  for  strictly 
educational  work,  and  whether  other  activities  are  a  help 


112  COLLEGE  AND  UNIVERSITY  FINANCE 

or  a  hindrance.  It  is  only  through  such  knowledge  that 
intelHgent  action  may  be  taken.  It  is  not  necessary  nor 
advisable  to  report  each  ledger  account  separately  in  the 
printed  annual  report.  Those  of  a  similar  kind  may  be 
grouped.  For  example,  there  would  probably  be  ledger 
accounts  with  every  department  of  the  college  of  arts  for 
instruction,  for  supphes,  and  for  equipment,  but  in  the 
printed  report  the  sum  paid  for  instruction  in  all  departments 
should  be  given  in  one  item,  that  paid  for  supplies  in  another, 
and  that  for  equipment  in  still  another. 

The  accounts  in  the  ledgers  should  be  arranged  and  kept 
in  such  manner  that  the  material  for  the  printed  annual 
report  may  be  taken  from  the  books  with  ease.  The  budget 
method  is  especially  suitable  for  this  purpose  because  the 
accounts  must  be  decided  in  advance  and  so  may  be  grouped 
and  arranged  in  an  orderly  and  logical  manner.  College 
authorities  are  often  asked  by  federal  and  state  officers, 
denominational  agencies,  educators,  and  others,  for  infor- 
mation under  the  headings  of  permanent  funds,  plant,  and 
current  accounts,  as  here  suggested.  If  the  accounts  are 
so  kept  and  the  annual  reports  so  constructed  that  the 
information  sought  may  be  answered  without  difficulty  much 
time  and  expense  will  be  saved.  Many  colleges  keep  their 
accounts  on  such  an  individual  system  that  days  and  weeks 
are  often  consumed  in  trying  to  answer  questions  asked  by 
the  persons  mentioned,  and  even  when  the  information  is 
given  there  are  grave  doubts  of  its  reliability. 

IV.      GIFTS 

The  fourth  division  of  the  annual  report  of  the  treasurer 
should  contain  a  Hst  of  gifts  paid  to  the  college  during  the 
year.    With  endowed  colleges  gifts  form  a  very  important 


FINANCIAL  REPORTS  113 

part  of  the  year's  financial  history  and  a  report  of  them  ought 
to  occupy  a  prominent  position.  Gifts  are  made  for  one  of 
two  purposes:  for  additional  resources,  such  as  buildings, 
land,  equipment,  and  endowment;  or  for  current  uses,  such 
as  instructors'  salaries  and  supplies  for  departments.  They 
should  therefore  be  divided,  those  for  capital  purposes  being 
put  in  one  class,  and  those  for  current  uses  in  another.  The 
two  classes  should  be  further  subdivided  to  show  the  objects 
for  which  the  gifts  are  made.  In  each  of  the  subdivisions 
the  names  of  the  donors  and  the  amounts  of  the  gifts  should 
be  listed  in  detail.  If  the  statement  of  gifts  is  arranged  in 
the  manner  herein  described  it  will  not  be  necessary  to  list 
them  again  when  they  appear  in  other  tables  and  schedules 
of  the  report,  because  the  totals  of  the  several  subdivisions 
may  be  inserted  in  the  appropriate  parts  of  the  report  and 
cross-reference  made  to  the  statement  of  gifts  for  details. 
If  this  custom  were  more  generally  followed  the  number  of 
pages  in  treasurers'  reports  could  be  much  reduced. 

V.      EXPLANATORY  STATEMENTS  AND   STATISTICS 

In  the  fifth  and  final  division  of  the  treasurer's  annual 
report,  explanatory  statements  and  statistics  should  appear; 
they  should  be  called  "Schedules"  because  they  are  used  to 
furnish  details  and  explanations  of  items  which  have  appeared 
in  Division  2  (the  balance  sheet)  and  in  Division  3  (statement 
of  current  operations). 

Since  the  statements  in  those  two  divisions  show  the 
college's  financial  condition  and  liistory  for  the  year,  and  are 
therefore  of  prime  importance,  it  is  better  to  designate  them 
"Tables."  Practically  every  item  given  in  the  balance  sheet 
in  total  should  be  explained  in  detail  by  a  subsequent 
schedule.    Thus,  while  in  the  balance  sheet  investments  of 


114  COLLEGE  AND  UNIVERSITY  FINANCE 

permanent  funds  may  be  given  in  one  smn,  the  schedule  of 
investments  should  indicate  the  several  kinds,  and,  if  thought 
desirable,  the  particular  investments  of  each  kind.  In  this 
way  full  publicity  may  be  given  to  the  manner  in  which  the 
funds  are  invested.  The  schedule  of  the  plant  should  give 
a  Hst  of  the  buildings  and  their  cost,  the  dates  of  erection, 
the  kind  and  cubic  content,  the  cost  of  land  used  for  campus 
and  its  extent,  and  also  the  cost  of  equipment  and  furniture. 
In  like  manner,  details  of  endowment  and  special  funds 
should  be  reported  in  separate  schedules,  which  should  indicate 
the  name  of  each  fund,  its  amount,  and  the  object  for  which 
it  was  given.  Endowments  should  also  be  divided  into 
restricted  and  unrestricted.  Each  of  these  classes  should  be 
further  subdivided  and  grouped  according  to  object.  Other 
items  in  the  balance  sheet  and  current  operation  tables 
requiring  elucidation  should  be  explained  at  length  in 
schedules  and  connected  with  the  tables  by  cross-reference. 

Statistics  furnished  may  be  of  various  kinds,  depending 
upon  the  subjects  which  are  thought  to  be  of  interest  to  the 
readers.  In  some  reports  statistics  of  salaries  paid,  classified 
by  departments  and  by  ranks,  are  inserted;  in  others, 
details  of  student  loan  funds  are  given.  Statistics  of  depart- 
mental costs,  arranged  as  to  capital  and  current  expenditures, 
are  frequently  pubhshed.  Care  should  be  exercised  not  to 
make  the  report  too  voluminous  through  the  inclusion  of 
statistics,  the  interest  in  which  is  confined  to  a  few  readers. 

In  general,  the  treasurer's  report  should  be  clear,  concise, 
and  complete.  Its  contents  should  be  arranged  in  logical 
order  and  its  terminology  not  too  technical. 

Finally,  the  correctness  of  the  statements  in  the  report 
should  be  vouched  for  by  a  firm  of  certified  public  account- 
ants, whose  certificate  should  be  appended. 


FINANCIAL  REPORTS  115 

A  treasurer's  complete  annual  report  of  a  hypothetical 
college,  arranged  in  form  and  method  so  as  to  embody  the 
results  and  to  give  effect  to  the  suggestions  and  principles 
heretofore  stated,  has  been  made  and  printed  on  pages 
119-63.  With  the  notes  and  explanations  given  it  is  hoped 
this  will  be  quite  clear  and  readily  understood. 

FOR  TRUSTEES  AND   OFFICERS 

The  annual  report  of  the  treasurer  is  primarily  designed 
to  inform  the  friends  of  the  college  and  any  others  who  may 
be  interested,  of  its  condition  and  financial  history  for  the 
year.  It  should  therefore  be  framed  most  effectively  to 
accompUsh  that  purpose.  Since  it  is  published  but  once  a 
year,  and  contains  much  information  in  summary  form  only, 
it  does  not  meet  fully  the  needs  of  the  trustees  and  officers 
who  must  administer  the  financial  affairs  of  the  college  day 
by  day.  For  them  financial  reports  should  be  made  more 
frequently  in  order  that  they  may  be  kept  fully  and  reliably 
informed  of  the  financial  condition  and  progress  of  the  college. 
Only  thus  can  the  interest  of  the  trustees  be  effectively 
maintained  and  data  be  furnished  on  the  basis  of  which  they 
may  take  intelligent  action.  The  reports  should  of  course 
be  based  on  figures  in  the  ledgers  and  be  in  harmony  with 
them,  and  should  contain  the  following  information:  (1) 
the  status  of  the  current  operations  and  the  extent  to  which 
the  estimates  of  income  and  expenditures  are  being  reaUzed, 
with  the  amount  of  variation,  if  any,  from  the  original 
estimates;  (2)  the  status  of  the  endowment  funds  and  the 
amount  iminvested;  (3)  the  condition  of  funds  for  special 
purposes  and  the  extent  to  which  the  purposes  are  being 
carried  out;  (4)  the  condition  of  the  current  assets  and 
liabilities;  (5)  the  financial  situation  as  a  whole. 


116  COLLEGE  AND  UNIVERSITY  FINANCE 

Information  regarding  current  operations  controlled  by 
budget  method  may  be  given  in  a  report  containing  the 
following:  (a)  the  original  estimates;  (6)  the  pro  rata  of 
estimates  to  date;  (c)  the  actual  receipts  and  expenditures 
to  date;  (d)  the  outstanding  requisitions;  (e)  the  relation 
which  the  actual  receipts  and  the  actual  expenditures, 
including  unfilled  requisitions,  bear  to  the  pro  rata  of  receipts 
and  expenditures,  with  the  amount  of  excess  or  shortage; 
(/)  the  balance  available  for  use  after  providing  for  all 
outstanding  requisitions. 

The  items  should  be  grouped  by  departments  and  in 
summaries  and  not  given  in  too  much  detail.  In  addition 
to  the  information  here  described,  a  comparison  of  the  total 
receipts  and  expenditures  for  the  present  year  with  those 
of  the  previous  year  will  be  very  helpful. 

The  condition  of  the  endowment  funds,  the  funds  for 
special  purposes,  the  current  assets  and  Habihties,  and  the 
financial  condition  as  a  whole  may  be  disclosed  by  a  properly 
constructed  balance  sheet  in  which  the  items  are  grouped 
to  show  the  present  status.  If  the  college  conducts  a  book- 
store, dining-hall,  or  any  other  so-called  business  department,  a 
statement  of  its  financial  condition  and  progress,  together  with 
a  comparison  with  that  of  the  previous  year  should  be  made. 

The  reports  should  be  made  monthly,  or  not  less  often 
than  quarterly,  and  copies  should  be  sent  to  every  trustee 
and  officer.  The  officer  who  prepares  the  reports  should  send 
a  letter  with  them  calling  attention  to  significant  features, 
and  to  any  matter  which  in  his  judgment  requires  attention. 

STATISTICAL  REPORTS 

In  addition  to  the  reports  which  the  treasurer  should 
make  regularly,  whenever  occasion  demands  he  should  also 


FINANCIAL  REPORTS  117 

make  reports  regarding  the  financial  condition  of  any  depart- 
ment which  he  may  think  needs  attention.  For  example, 
if  the  dining-halls  are  losing  money,  a  detailed  report  of  their 
financial  history  for  the  past  several  years,  giving  particulars 
of  the  income  and  expenses  and  their  tendencies,  will  enable 
the  trustees  to  act  intelligently.  If  the  report  discloses  the 
fact  that  expenses  are  higher  than  they  ought  to  be,  steps 
may  be  taken  to  improve  the  management;  if  the  patronage 
is  falling  off  inquiry  may  be  made  regarding  the  attractive- 
ness and  variety  of  the  food  furnished,  or  if  the  patronage 
is  still  as  great  as  in  the  past,  but  the  receipts  relatively 
smaller,  it  may  be  decided  to  increase  the  prices. 

Statistical  reports  of  a  similar  kind  might  well  be  fur- 
nished frequently  to  the  trustees,  showing  the  relation 
between  the  market  price  and  book  value  of  investments 
held,  its  trend,  and  any  other  features  of  interest,  the  nature 
of  the  investments  and  the  varying  ratios  which  the  different 
kinds  bear  to  the  totals  in  the  several  years.  The  operation 
of  the  dormitories,  bookstore,  and  music  school  may  also 
be  reported  upon  and  comparisons  made  of  their  operations 
for  a  number  of  years. 

TRUST  FUND  REPORTS 

Although  the  trust  funds  held  by  an  endowed  college 
may  be  many  in  number,  trustees  are  rarely  acquainted  in 
detail  with  what  they  are,  their  objects,  conditions,  and  how 
the  latter  are  observed.  New  trustees  who  are  not  familiar 
with  the  trusts  and  their  history  are  being  elected  constantly 
in  the  place  of  trustees  who  have  served  for  many  years  and 
dropoutonaccountof  limited  term,  age,  or  death.  The  funds, 
however,  should  be  carefully  preserved  and  the  conditions 
scrupulously  observed.    Unless  the  trustees  know  what  the 


118  COLLEGE  AND  UNIVERSITY  FINANCE 

conditions  are,  how  can  they  be  sure  that  they  are  being 
fulfilled  ?    But  as  trustees,  such  is  their  duty. 

An  endowed  college  is  usually  seeking  gifts,  and  it  should 
for  every  reason  manage  those  it  has  in  the  wisest  manner, 
carefully  observing  the  conditions  attached  to  them.  To  ac- 
quaint the  trustees  with  the  conditions  of  trust  funds  and  to 
keep  them  informed  regularly  that  the  conditions  are  being 
fulfilled,  a  report  of  one  or  more  trusts  should  be  made  to  the 
trustees  monthly.  The  report  should  give  the  letter  and 
date  of  gift,  the  history  of  the  trust,  whether  the  gift  was 
made  in  cash  or  in  securities,  what  the  present  investments 
belonging  to  the  fund  are  (if  they  are  kept  separate),  the 
conditions  of  the  trust,  and  the  way  in  which  the  conditions 
are  being  fulfilled.  For  example,  if  the  trust  be  for  a  fellow- 
ship, the  names  of  the  fellows  appointed  since  the  date  of  the 
last  report  should  be  given. 

By  means  of  such  reports  the  trustees  may  in  course  of 
time  become  fully  acquainted  with  all  the  trusts  which  the 
college  holds  and  assure  themselves  that  the  conditions  are 
being  observed.  Another  advantage  may  be  derived  from 
making  the  reports.  In  the  course  of  time  the  reports 
constitute  a  file  embodying  in  convenient  form  the  history 
and  execution  of  each  trust.  The  administrative  officers  of 
the  college  may  also  profit  from  these  reports  because  by  the 
recital  of  the  manner  in  which  the  conditions  of  the  trusts 
have  been  executed  any  omissions  may  be  observed  imme- 
diately and  provision  made  against  their  recurrence. 


CHAPTER  IX 
ANNUAL  REPORT  OF  THE  TREASURER 

To  the  Trustees  of College: 

Gentlemen: 

I  have  the  honor  to  present  herewith  the  sixty-fifth 
annual  report  of  the  treasurer  for  the  fiscal  year  which  ended 
Jime  30,  1921,  in  which  is  given  the  financial  history  of 
the  college  for  the  year  and  its  financial  condition  at  its 
close. 

It  gives  me  pleasure  to  state  that  the  financial  results 
were  satisfactory,  particularly  so  when  one  considers  the 
economic  unrest  of  the  year,  as  a  result  of  the  Great 
War. 

SURPLUS  AND   INCREASE   IN  ASSETS 

The  current  operations  for  the  year  resulted  in  a  surplus 
of  $3,293.88.  The  sources  of  the  surplus  are  shown  in  the 
table  on  the  next  page.  By  action  of  the  executive  committee 
$1,059.43  of  the  surplus  has  been  added  to  "Reserves"  for 
dormitories  and  dining-halls,  equipment  and  expense; 
$289.97  to  annuity  income  reserve;  and  the  remainder, 
$1,944.48,  to  accumulated  surplus,  which  now  stands  at 
$3,216.14.  In  accordance  with  the  poUcy  of  the  board, 
rental  has  been  charged  to  the  dormitories,  dining-haUs,  and 
School  of  Music  for  buildings  and  equipment  used  equivalent 
to  interest  at  4  per  cent  per  annum  on  cost  plus  a  sum  for 
the  estimated  amount  of  depreciation,  and  credited  to 
college  income. 

119 


120 


COLLEGE  AND  UNIVERSITY  FINANCE 


It  will  be  noted  from  the  following  table  that  the  receipts 
and  expenditures  of  the  college  as  a  whole  for  the  year 
were  as  follows: 

RECEIPTS  AND  EXPENDITURES  FOR  THE  YEAR  FOR 
ALL  PURPOSES 

CXJREENT 


Receipts 


Expendi- 
tures 


Surplus 


Excess 
Expendi- 
tures 
Provided 

from 
Balance 
Brought 
Forward 

from 
Last  Year 


College  of  Liberal  Arts  (Table  III, 
p.  131) 

Dormitories  (Table  V,  p.  136). . . 

Dining-halls  (Table  VI,  p.  137).. 

Bookstore  (Table  VII,  p.  138).. 

School  of  Music  (Table  VIII,  p. 
139) 

Annuities  income  (Schedule  VI, 
p.  156) 


$191,628.79 
16,725.00 
31,681.11 
21,092.93 

14,905.11 

9,386.97 


$190,642.45 
16,683.57 
30,663.11 
20,404.88 

14,635.02 

9,097.00 


$    986.34 

41.43 

1,018.00 

688.05 

270.09 

289.97 


Surplus  (Table  II,  p.  130) 

Reserves  (Schedule  X,  p.  162) . 

Special  funds  for  designated  pur- 
poses (Schedule  VIII,  p.  158) . 

Special  lectures  (Schedule  VIII, 
p.  168) 

General  funds  for  designated  pur- 
poses (Schedule  IX,  p.  161) . . . 


Deduct  duplications  and  transfers 
Net  totals 


$285,419.91 

4,i49!46 

315.72 


$282,126.03 


47,227.78 


222.50 

1,500.00 

47,280.64 


$3,293.88 
4,149.40 


93.22 


$1,500.00 
52.86 


$337,112.81 
49,088.30 


$331,129.17 
47,738.90 


$7,536.50 
1,349.40 


$1,552.86 


$288,024.51 


$283,390.27 


Increase    in    current   assets 
from  operation 


$6,187.10 
1,552.86 


$1,552.86 


$4,634.24 


TREASURER'S  REPORT 
Capital 


121 


Receipts 

Expendi- 
tures 

Losses 

Net 

Increase  in 

Capitol 

Assets 

Endowment  (Schedule  V,  p.  152). 

Endowment  anniiities  (Schedule 

VI,  p.  155) 

$29,999.69 

4.000.00 

31.839.49 

3,050.00 

$      281.57 

3,000.00 

49,108.60 

$7,749.13 

$21,968.99 
1.000  00 

Buildings  and  equipment  (Sched- 
ule VII,  p.  157) 

31,839.49 

Books  added  to  property  paid  for 

3,050.00 

$68,889.18 
3,000.00 

$52,390.17 
3,000.00 

$7,749.13 

$57,858.48 

$65,889.18 

$49,390.17 

$7,749.13 

$57,858.48 

Receipts  for  current  purposes $288,024. 51 

Expenditures  for  current  purposes 283,390.27 


Resulting  in  an  increase  in  assets  from  current  operations 

of $  4,634.24 

The  college  also  received  for  capital  pur- 
poses   $  65,889. 18 

Which  was  diminished  by  expenses  and 

losses  of 8,030.70 

Making  a  net  increase  in  capital  assets  of 57 ,  858 .  48 


A  total  increase  of  assets  during  the  year  of $62,492 .  72 


Expenditures  amounting  to  $47,347.80  were  made  for 
enlarging,  remodeling,  and  furnishing  dormitories  and 
residences,  an  improvement  made  possible  by  the  generosity 
of  Mr.  Samuel  Chapin.  To  procure  preliminary  plans  for 
the  Students'  Christian  Association  and  Recreation  Building, 
$1,760.80  was  expended.  The  total  of  these  two  sums, 
$49,108.60,  was  provided  from  gifts  and  interest  thereon. 


122  COLLEGE  AND  UNIVERSITY  FINANCE 

The  increase  of  the  college  assets,  $62,492.72,  consisted 
for  the  most  part  of  gifts.  The  gifts  for  capital  purposes 
amounted  to  $53,881.61,  of  which  $27,420.21  was  for 
additional  endowment,  and  $26,461.40  for  buildings  and 
equipment.  In  Table  X,  page  141  of  this  report,  will  be  foimd 
a  detailed  list  of  the  donors,  the  amount  of  their  gifts,  and  the 
purposes  for  which  they  were  contributed.  The  college 
extends  its  grateful  thanks  to  its  friends  for  these  evidences 
of  their  interest  in  the  work  of  the  college.  Mrs.  Mary  W. 
Ladd  made  a  most  acceptable  gift  of  $4,000  for  scholarships, 
subject  to  an  annuity  of  $200  during  her  lifetime.  Owing  to 
the  death  of  Mr.  N.  Clark  his  contribution  of  $3,000  made  in 
1904  for  scholarships  on  an  annuity  basis  now  becomes 
available  endowment.  The  net  profits  on  the  sale  of  endow- 
ment securities  amounted  to  $2,830.35,  which  has  been  added 
to  the  consolidated  endowment  fimds.  Stock  to  the  amount 
of  $7,000,  which  had  been  given  to  the  college  as  a  part  of 
the  Hamm  Fund  for  student  aid  was  charged  off  as  found  to 
be  of  no  value. 

The  net  additions  to  assets  may  be  classified  as  follows: 

Net  additions  to  endowment $22,968.99 

Net  additions  to  plant  funds 34,889.49 

Net  additions  to  cmrent  assets 4 ,  634 .  24 

Total $62,492.72 

The  total  investments  held  by  the  college  on  June  30, 
1921,  were  $2,065,293.43,  belonging  to 

Endowment  funds $1,749,243.43 

Endowment  annuity  funds 158 ,  300 .  00 

Building  and  equipment  f  imds . . .       143 ,  750 .  00 
Current  funds 
(Certificate  of  deposit) 14 ,  000 .  00 

$2,065,293.43 


TREASURER'S  REPORT  123 

Owing  to  the  depression  in  value  of  bonds  and  stocks  the 
book  value  on  June  30  was  $15,040.60  in  excess  of  the 
market  value. 

CUREENT  OPERATIONS — COLLEGE   OF  LIBERAL  ARTS 

The  income  and  expenses  of  the  college  for  the  year 
were  the  largest  in  its  history.  Notwithstanding  the  increase 
in  salaries  of  administrative  ofl&cers  and  faculty  and  the 
greater  cost  of  all  kinds  of  services  and  materials,  the 
receipts  were  sufficient  to  pay  all  expenses  and  provide  a 
surplus.  The  increase  in  receipts  was  due  to  an  additional 
enrolment  of  twenty  students  and  to  an  advance  in  the  tuition 
fee  from  $120  to  $150  per  year,  made  necessary  by  increased 
cost  of  operation.  Investments  also  yielded  a  larger  income 
because  of  more  endowment  and  higher  interest  rates. 

By  reference  to  Table  IV,  page  135,  an  analysis  of  the 
income  and  the  expenses  of  the  College  of  Liberal  Arts  as  to 
source,  purpose,  and  percentage  of  total,  it  will  be  seen  that 
the  income  from  students  comprised  38.8  per  cent  of  the 
total,  an  increase  of  5.1  per  cent,  due  mainly  to  the  25  per 
cent  increase  in  tuition  fee,  and  that  income  from  endow- 
ments furnished  46  per  cent  of  the  total — a  decrease  of  3.1 
per  cent.  It  may  also  be  noted  that  the  salaries  for  instruc- 
tional departments  constituted  58.5  per  cent  of  the  total 
expenses,  an  increase  of  1.3  per  cent  owing  to  increases  in 
salary,  while  the  cost  of  operation  and  maintenance  of  the 
physical  plant  was  16.8  per  cent,  a  reduction  from  the  previous 
year  of  1.2  per  cent.  The  instructional  expense  of  all  kinds 
was  62.8  per  cent  of  the  total,  an  increase  of  1.6  per  cent. 
It  is  gratifying  to  learn  that  a  greater  amount  of  the  college 
income  is  being  devoted  to  educational  work,  the  real  purpose 
of  the  college,  and  a  smaller  proportional  sum  to  administra- 
tion and  operation  of  plant. 


124  COLLEGE  AND  UNIVERSITY  FINANCE 

The  average  attendance  for  the  year  was  464,  and  the 
total  cost  of  running  the  college  $190,642.45,  a  cost  per  student 
of  $410.87.  The  average  receipts  from  each  student  were 
$160.18,  leaving  $250.69  to  be  provided  from  other  sources. 
For  1919-20  the  cost  per  student  was  $391.36,  and  the  aver- 
age receipts  from  each  student  $130.36,  making  it  necessary  to 
obtain  from  other  sources  $261  on  account  of  each  student. 
For  each  student,  therefore,  the  college  contributed  on  the 
average  $10.31  less  of  the  cost  of  his  education  than  it  did 
in  1919-20. 

In  computing  the  cost  of  furnishing  education  to  each 
student,  in  accordance  with  prevailing  custom,  no  charge 
has  been  made  for  interest  on  cost  of  plant,  nor  for  an  amount 
to  provide  for  its  depreciation.  If  it  is  desired  to  include 
such  charges,  the  amoimt  invested  in  educational  plant  may 
be  found  by  reference  to  Schedule  III,  page  149. 

SELF-SUPPORTING  DEPARTMENTS 

As  has  been  shown  already,  the  activities  which  the 
college  endeavors  to  operate  on  a  self-supporting  basis  have 
met  that  expectation.  The  operations  of  the  dormitories 
(Table  V,  page  136),  however,  barely  met  expenses  and 
returned  4  per  cent  on  cost  and  2  per  cent  for  depreciation. 
In  fact,  Carver  Cottage  failed  to  do  so  by  $180.07.  The  net 
return  has  been  carried  to  "Reserves"  for  future  expenses 
and  equipment  of  the  dormitories.  It  is  evident  that  imless 
room  rents  are  increased,  or  expenses  reduced,  either  of 
which  will  be  difficult  to  do,  it  will  not  be  long  before  the 
dormitories  will  not  yield  4  per  cent  on  cost  and  provide  for 
depreciation. 

The  dining-halls  (Table  VI,  page  137)  yielded  a  surplus 
of  $1,018,  which,  in  accord  with  your  policy,  has  been  reserved 


TREASURER'S  REPORT  125 

for  their  future  needs.  The  college  does  not  plan  to  make 
any  profit  for  its  own  use  from  the  boarding  department. 

The  bookstore  (Table  VII,  page  138)  paid  all  expenses  and 
yielded  a  profit  of  $688.05,  which  has  been  carried  to  college 
" Surplus "  for  such  use  as  the  trustees  may  see  fit.  The  sales 
of  the  store  were  $21,092.93,  an  increase  of  $3,084.72. 

The  School  of  Music  (Table  VIII,  page  139)  paid  all 
expenses,  provided  $800  for  equipment  replacement,  and  a 
net  profit  of  $270.09,  which  has  been  put  into  college 
"Surplus." 

Annuity  investments  (Schedule  II,  page  148)  produced 
income  sufficient  to  pay  all  annuities  and  provide  a  remainder 
of  $289.97,  which  has  been  put  into  annuity  income  reserve. 
This  disposition  of  the  surplus  income  is  in  harmony  with 
the  custom  of  the  board  that  a  reserve  may  be  estabUshed 
so  that  annuities  should  not  in  any  degree,  even  in  a  year 
when  the  payments  exceed  the  income,  diminish  the  income 
available  for  current  purposes. 

BUILDING  ADDITIONS  AND  NEW  PLANS 

As  stated  on  a  preceding  page,  changes  and  additions  to 
dormitories  and  residences  were  made  (Schedule  VII,  page 
157)  to  bring  them  up  to  modem  standards.  The  cost, 
$47,347.80,  was  defrayed  from  a  fund  generously  provided 
by  Mr.  Samuel  Chapin.  The  fund  donated  by  Mr.  Thomas 
French  for  a  new  building  for  the  fine  arts  is  being  allowed 
to  accumulate  imtil  building  costs  shall  not  exceed  the  sum 
available.  It  now  stands  at  $52,250.  He  has  added  $5,000 
to  his  contribution  for  art  equipment  and  collections,  which, 
with  accumulated  interest,  now  amounts  to  $31,250.  Most 
satisfactory  progress  has  been  made  in  obtaining  funds  for 
the  Students'  Christian  Association  and  Recreation  Building, 


126  COLLEGE  AND  UNIVERSITY  FINANCE 


),000  having  been  contributed  during  the  year  by  Mrs. 
Swift  and  Messrs.  Bond,  Smith,  and  Wilder.  The  fund  and 
interest  aggregate  $63,360.45.  Of  this  sum  $1,760.80  was 
expended  during  the  year  for  preliminary  plans  and  expenses. 
Until  operations  are  commenced  the  funds  have  been  tempo- 
rarily invested  in  good  short-term  securities  (Schedule  IV, 
page  151). 

GIFTS 

Gifts  actually  paid  to  the  college  during  the  year  totaled 
$71,745.61  (Table  X,  page  141).  Of  this  amount  $53,881.61 
was  for  capital,  and  $17,864  for  current  uses.  Acknowledg- 
ment has  been  made  to  the  donors,  and  the  appreciation 
of  the  college  is  hereby  pubUcly  expressed  for  these  welcome 
gifts  for  its  needs.  The  total  gifts  received  from  the  founding 
of  the  college  to  date  for  all  purposes  amount  to  $2,961,382.50. 
A  complete  list  of  gifts  to  June  30,  1920,  may  be  found  in 
an  appendix  to  the  Treasm-er's  Report  for  1919-20. 

auditor's  report  op  examination 

The  accounts,  cash,  and  securities  of  the  college  have 
been  examined  and  found  correct  by  Messrs.  Jones  and 
Mudge.    Their  certificate  will  be  found  on  page  127. 

Respectfully  submitted, 

John  Bounty,  Treasurer 


TREASURER'S  REPORT  127 

CERTIFICATE   OF  AUDITOR 

We  have  audited  the  accounts  of  College  for 

the  year  ended  June  30,  1921,  and  now  certify  that  Tables 
I  to  X  and  Schedules  I  to  XI,  compiled  by  the  treas- 
urer, are  in  accordance  therewith,  and  also  that  the  Balance 
Sheet,  Table  I,  in  our  opinion,  exhibits  a  true  statement 
of  the  financial  condition  of  the  college  as  at  that  date. 

We  have  examined  or  traced  by  correspondence  all  the 
securities  covering  the  investments  and  found  them  in  order. 

The  books  are  well  kept  and  the  files  are  in  good  order. 

Jones  &  Mudge, 

Certified  Public  Accountants 
Chicago,  Illinois 
September  1, 1921 


FINANCIAL  TAB] 


The  financial  situation  of 


College  a1 


Db. 


Permanent  Fund  Assets 

Investments  of  endowment  funds 
(Schedule  I,  p.  144) 

$1,749,243.43 
18,181.34 

$1,767,424.77 
159,500.00 

Cash  awaiting  investment  (Sched- 
ule V,  p.  152) 

Investments    of    annuity    funds 
(Schedule  II,  p.  148) 

Cash  awaiting  investment  (Sched- 
ule VI,  p.  155) 

$    158,300.00 
1,200.00 

$    512,580.80 
89,000.00 

149,262.70 

$1,926,924 

Plant  Assbtb 
Buildings 

$    750,843.50 

143,750.00 

1,349.65 

Books,  equipment,  and  furniture 
(Schedule  III,  p.  150> 

Investments    of    building    funds 
(Schedule  IV,  p.  151) 

$        4.054.78 

14,000.00 
9,549.79 

Cash    on    hand    (Schedule    VII, 
p.  157) 

895,943 

Curbbnt  Assets 
Cash 
Special      purposes      (Schedule 
VIII,  p.  158) 

$      27,604.57 
4,582.91 

6,810.27 
839.20 

General  purposes,  certificate  of 

General  purposes 

Receivables 
Notes      receivable      (Schedule 
VIII,  p.  158) 

$        2,852.76 
840.15 
890.00 

Other  notes  receivable 

' 

Materials  and  supplies 

Bookstore,  p.   138 

$        1,602.01 

1,755.00 

635.18 

1,315.00 

1,503.08 

Dining-halls.   p.  137 

Dormitories,  p.  136 

Power  plant,  coal,  etc.,  p.  140. 

Insubancb  Pbbmiums 
Unexpired 

39,836 

Total 

$2,862,704 

D  SCHEDULES 


of  the  fiscal  year  June  30,  1921,  is  as  follows: 


Cr. 


RMANBNT  FuNDS 

Endowments  (Schedule  V,  p.  152) 
Endowment  funds  subject  to  an- 
nuities (Schedule  VI,  p.  155) . . . 

$    674,159.40 
74,923.30 

$1,767,424.77 
159,500.00 

$1,926,924.77 

ANT  Funds 
[nvested  in  plant 
a)  From  gifts   and   accumula- 
tions   

$    749,082.70 
146,860.45 

6)  From  current  funds 

iuilding  equipment  funds  (Sched- 
ule VII,  p.  157) 

$           760.00 

200.00 

7,462.13 

895,943.15 

rBBENT  Funds  and  Liabiutibs 
Zhurent  Liabilities 

$        8,412.13 

12,478.00 

850.00 

14,880.68 

3,216.14 

B'unds  for  designated  purposes 
Special  (Schedule  VIII,  p.  158) . 
General  (Schedule  IX,  p.  161) . . 

$        6,907.54 
5,570.46 

Income  credits 
Room  rent  paid  in  advance .... 
Reserves  (Schedule  X,  p.  162). 
Surplus  (Table  II,  p.  130) 

39.836.95 

$2,862,704.87 

130  COLLEGE  AND  UNIVERSITY  FINANCE 

TABLE  II 
SuBPLUS  AND  Depicit  Accotjnt  1920-21 

The  current  operations  of  the  college  resulted  in  a  total  surplus  of 
$3,293.88,  shown  below: 


Surplus 

Deficit 

College  of  Liberal  Arts  (Table  III,  p.  134) 

$    986.34 

41.43 

1,018.00 

688.05 

270.09 

289.97 

Dormitories  (Table  V,  p.  136) 

Dining-halls  (Table  VI,  p.  137) 

Bookstore  (Table  VII,  p  138) 

School  of  Music  (Table  VIII,  p.  139) 

Annuities  (Schedule  VI,  p.  156) 

$3,293.88 

Disposition  of  Surplus — 

Carried  to  dormitory  equipment  and  expense 
reserve $      41 .  43 

Carried  to  dining-hall  equipment  and  ex- 
pense reserve 1,018.00 

Carried  to  annuity  income  reserve 289 .  97 


Total  carried  to  "Reserves"   (Schedule 

X),  p.  162 $1,349.40 

Balance  carried  to  surplus 1 ,944 .  48 


$3,293.88 


Balance  in  surplus  July  1,  1920 $1,271 .66 

Added  this  year 1,944.48 

Balance  in  surplus  July  1,  1921,  carried  to 

"Balance  Sheet,"  p.  129 $3,216. 14 


TREASURER'S  REPORT  131 

TABLE  III 

College  of  Liberal  Arts — Income 

The  income  for  educational  purposes  for  the  year  was  $191,628.79, 
and  for  certain  special  objects  in  connection  with  the  college  it  was 
$15,517.04,  as  follows: 


This  Year 
1920-21 

Last  Year 
1919-20 

Increase 

Decrease 

1 .  Student  feea 

$  69,576.30 

2,640.15 

1,950.00 

156.18 

$  53,329.50 

2,610.30 

1,800.00 

140.92 

$16,246.80 

29.85 

150.00 

15.26 

Matriciilation  and  graduation . . . 

$  74,322.63 

$  57,880.72 

$16,441.91 

2.  Income  from  endowments  (net) 

$  54,876.44 
33,263.60 

$  52,590.68 
31,755.46 

$  2,285.76 
1,508.14 

General — restricted       (Schedule 
IX,  p.  161) 

$  88,140.04 

$  84,346.14 

$  3,793.90 

3.  Gifts 

General  (Table  X,  p.  143) 

$  16,130.00 

$  16,630.00 

$500.00 

$  16,130.00 

$  16,630.00 

$500.00 

4.  Miscellaneous 

Rentals  from  dormitories,   din- 
ing-halls,  bookstore,  etc 

$  11,675.30 
1,360.82 

$   11,675.30 
1,290.40 

$         70.42 

$  13,036.12 

$  12,965.70 

$        70.42 

Total    income    available    for 
educational  expense 

$191,628.79 

$171,822.56 

$20,306.23 

$500.00 

5.  For    specially    designated    pur- 
poses not  a  part  of  educa- 
tional expense 
Lectures — extra-curriculum 
Special  (Schedule  VIII,  p. 
168) 

$     1,500.00 

280.00 

6,900.78 

2,475.00 
310.00 

$  1,500.00 

General    (Schedule   IX,    p. 
160) 

$        280.00 

4,500.26 

2,425.00 
210.00 

Scholarships     (Schedule    IX, 
p.  160) 

2,400.52 

50,00 
100.00 

Student    aid    (Schedule    IX, 
p.  160) 

Prises  (Schedule  IX,  p.  161) . . 

132 


COLLEGE  AND  UNIVERSITY  FINANCE 


TABLE  UI— Continued 
CoLUBGE  OF  Liberal  Arts — Income 


This  Year 
1920-21 

Last  Year 
1919-20 

Increase 

Decrease 

Dormitory    (Underwood)    Li- 
brary (Schedule  IX,  p.  161) 

S        784.00 

3,001.40 

265.86 

$        784.00 

2,560.18 

640.34 

Athletics    (Schedule    IX,    p. 
161) 

t      441.22 

Athletic  field    (Schedule  IX, 
p.  160) 

$374.48 

$  15,517.04 

$  11,399.78 

$  4,491.74 

$374.48 

$207,145.83 

$183,222.34 

$24,797.97 

$874.48 

TREASURER'S  REPORT 


133 


TABLE  III— Continued 
College  of  Liberal  Arts — ^Expense 

The  expenditures  for  educational  purposes  for  the  year  were 
$190,642.45,  and  for  special  purposes  connected  with  the  college,  but 
not  a  part  of  educational  cost,  $15,517.04. 


This  Year 
1920-21 

Last  Year 
1919-20 

Increase 

Decrease 

Administration  and  general 
1.  Executive  offices 

$  26,640.50 
4,360.20 

2,450.55 
2,590.70 

1,743.48 
960.12 

$  25,340.00 
3.860.18 

2,043.91 
2,140.63 

1,721.31 
1,094.53 

$  1,300.50 
500.02 

406.64 
450.07 

22.17 

Supplies  and  expense 

2.  General 

Catalogues  and  publications . . 

Commencement    and    public 

$134.41 

$  38,745.55 

$  36,200.56 

$  2,679.40 

$134.41 

Operation     and     maintenance    of 
physical    plant     (Schedule     XI, 
p.  163) 

$  32,068.60 

$  31,288.15 

$      780.45 

Instructional 
1.  Salaries 

College 

$103,218.75 
2,892.30 
1.041.75 

4,430.00 

2,628.42 

304.80 

75.30 

2,402.13 

2,616.24 

219.61 

$  92,329.93 
2,584.23 
1,035.25 

3,430.00 

2,463.71 

296.18 

85.12 

2,143.97 

1,875.14 

33.50 

$10,888.82 

308.07 

6.50 

1,000.00 

164.71 
8.62 

Premiums — retiring    allow- 
ances   

2.  Supplies  and  expenses 

College 

Library 

Sherman  Museum 

$     9.82 

3.  Equipment  and  books — edu- 
cational 
College 

258.16 
740.10 
186.11 

Library 

$119,828.30 

$106,277.03 

$13,661.09 

$     9.82 

Total    expense    for    educa- 

$190,642.45 

$173,765.74 

$17,020.94 

$144.23 

134 


COLLEGE  AND  UNIVERSITY  FINANCE 


TABLE  III— Continued 
College  op  Liberal  Arts — ^Expense 


This  Year 
1920-21 

Last  Year 
1919-20 

Increase 

Decrease 

$190,642.45 

$173,765.74 

$17,020.94 

$144.23 

4.  For  specially  designated  pur- 
poses 
Lectures — extra-curriculum 
Special     (Schedule      VIII, 
p.  168) 

$     1,500.00 

280.00 

6,900.78 

2,475.00 
310.00 

784.00 
3,001.40 

265.86 

$  1,500.00 

General      (Schedule       IX, 
p.  160) 

$        280.00 

4,500.26 

2,425.00 
210.00 

784.00 
2,560.18 

640.34 

Scholarships    (Schedule     IX, 
p.  160) 

2,400.52 

50.00 
100.00 

Student    aid    (Schedule    IX, 
p.  160) 

Prizes  (Schedule  IX,  p.  161) . . 
Dormitory    (Underwood)    Li- 
brary (Schedule  IX,  p.  161) 

Athletics  (Schedule  IX,  p.  161) 

Athletic  field    (Schedule   IX, 

p.  160) 

441.22 

$374.48 

$  15,517.04 

$  11,399.78 

$  4,491.74 

$374.48 

$206,159.49 

$185,165.52 

$21,512.68 

$518.71 

Summary 


Total  income  (p.  132) 

$207,145.83 
206,159.49 

$183,222.34 
185,165.52 

$24,797.97 
21,512.68 

$874.48 

Total  expense  (see  above) 

518.71 

Deficit  1919-20 

$     1,943.18 

Surplus    1920-21    (Table    II, 
p.  130) 

$        986.34 

$  3,285.29 

$355.77 

TREASURER'S  REPORT 
TABLE  IV 


135 


Analysis  of  Income  and  Expense  of  College  of  Liberal  Aets 

Analysis  of  the  income  and  expenses  (excluding  items  for  specially 
designated  purposes  of  $15,517.04  in  1920-21  and  $11,399.78  in  1919-20, 
which  do  not  enter  into  the  cost  to  the  college  of  furnishing  instruction  to 
the  students)  shows  the  following  as  to  source,  purpose,  and  p)ercentage 
of  total: 


Income 


1920-21 

1919-20 

Amount 

Per- 
centage 

Amount 

Per- 
centage 

Student  fees 

$  74,322.63 
88,140.04 
16,130.00 
13,036.12 

38.8 

46.0 

8.4 

6.8 

$  57,880.72 
84,346.14 
16,630.00 
12,965.70 

33.7 

49.1 

Gifts 

9.7 

Miscellaneous  (rentals,  etc.) 

7.5 

Totals 

$191,628.79 

100.0 

$171,822.66 

100.0 

EXPENBBS 


Administration  and  general 

Executive  offices , 

General 

Operation  and  maintenance  of  physi- 
cal plant 

Instructional 

Salaries 

Supplies  and  expenses 

Equipment  and  books 

Totals 


$  31,000.70 

7,744.85 

32,068.60 

111.582.80 
3,008.52 
5,236.98 


$190,642.45 


16.3 
4.1 

16.8 

58.5 
1.6 
2.7 


100.0 


$  29,200.18 
7,000.38 

31,288.15 

99,379.41 
2,845.01 
4,052.61 


$173,765.74 


16.8 
4.0 

18.0 

67.2 
1.7 
2.3 


100.0 


136 


COLLEGE  AND  UNIVERSITY  FINANCE 


TABLE  V 
Dormitories 

The  current  operations  of  the  dormitories  for  the  year  1920-21 
resulted  in  a  gain  from  the  two  larger  buildings  and  a  loss  on  the  cottage, 
a  net  gain  of  $41.43,  as  shown  below: 


Christie 
HaU 

Underwood 
HaU 

Carver 
Cottage 

Totals 

Receipts 

S  7,670.00 

$  7,480.00 

$  1,575.00 

$16,725.00 

Disbursements 

Supplies,    including    inventory    of 
July  1,  1920 

$      628.32 
235.20 

$      664.80 
267.53 

$      282.30 
132.45 

$  1,576.42 

Less  inventory  of  supplies  of  June 
30,  1921 

635.18 

$      393.12 

1,432.41 

500.00 

3,364.20 

1,200.00 

300.00 

108.00 

131.40 

72.50 

$      397.27 

1,596.29 

528.26 

3,264.00 

1,000.00 

280.00 

200.00 

108.80 

52.25 

$      149.85 

288.31 

39.78 

780.00 

300.00 

108.00 

52.00 

26.00 

11.13 

$      940.24 

3,317.01 

Repairs — ^buildings  and  equipment . 
Rent,  including  charge  for  deprecia- 

1,068.04 
7,408.20 

Heat 

2,500.00 

Light 

688.00 

Water 

360.00 

266.20 

Miscellaneous 

135.88 

Total 

$  7,501.63 

$  7,426.87 

$  1,755.07 

$16,683.57 

$      168.37 

$        53.13 

$      180.07 

Net   gain   carried    to    "Surplus   Ac- 
count," Table  II,  p.  130 

$        41.43 

TREASURER'S  REPORT 


137 


TABLE  VI 
Dining-Halls 

The  current  operations  of  the  dining-halls  for  the  year  1920-21 
yielded  a  net  gain  of  $1,018,  as  shown  below: 


Receipts 
From  meab  served . 


Disbursemente 

Subsistence  and  supplies,  including  inven- 
tory of  July  1,  1920 

Less  inventory  of  June  30, 1921 


Net  cost  of  supplies  and  subsistence  used. 

Services  (salaries  and  wages) 

Laundry 

Repairs 

Rent,  including  charge  for  depreciation. . 

Heat 

Light 

Water 

Insurance 

Miscellaneous 


Total. 


Gains 

Total   gain   transferred   to   "Surplus   Ac- 
count," Table  II,  p.  130  


Christie 
Hall 


$14,652.63 


$  7,313.24 
820.00 


6,493.24 

4,200.00 

997.23 

497.90 

975.10 

570.00 

142.00 

148.00 

68.00 

48.16 


$14,139.63 


$   513.00 


Underwood 
HaU 


$17,028.48 


$  8.937.17 
935.00 


8,002.17 

5,026.00 

984.18 

390.00 

1,022.00 

630.00 

180.00 

172.00 

70.00 

47.13 


$16,523.48 


$   505.00 


Totals 


$31,681.11 


$16,250.41 
1,755.00 


$14,495.41 

9,226.00 

1,981.41 

887.90 

1,997.10 

1.200.00 

322.00 

320.00 

138.00 

95.29 


$30,663.11 


$  1,018.00 


I 


138  COLLEGE  AND  UNIVERSITY  FINANCE 

TABLE  VII 
College  Bookstore 

The  current  operations  of  the  college  bookstore  for  1920-21 
resulted  in  a  net  gain  of  $688.05,  as  shown  below: 

Receipts 

Sales $21,092.93 

Disbursements 

Books  and  merchandise,  including  in- 
ventory of  July  1,  1920 $20,401 .23 

Less  inventory  of  June  30,  1921 1 ,  602 .  01 

Cost  of  stock  sold $18,799.22 

Salaries  and  wages 1 ,  233 .  42 

Freight  and  cartage 83 .  24 

Repairs 16.00 

Rent,  including  charge  for  depreciation 

and  interest 120. 00 

Postage 30.00 

Insurance 75.00 

Miscellaneous 48.00 

Total $20,404.88 

Gain  transferred  to  "Surplus  Account,"  Table  II, 
p.  130 $      688.05 


TREASURER'S  REPORT  139 

TABLE  VIII 
School  of  Music 

The  current  operations  of  the  School  of  Music  for  the  year 
1920-21  resulted  in  a  total  net  gain  of  $270.09,  as  shown  below: 

Receipts 

Fees $13,037.83 

Concerts  and  recitals 1,630.00 

Miscellaneous 237.28 

Total $14,905. 11 

Disbursements 

Administrative 

a)  Salaries $  1,280.00 

b)  SuppUes  and  expense 128.00 

General 

a)  Concerts  and  recitals 1,780.00 

6)  Miscellaneous 86.00 

Operation  and  maintenance  of  physical 
plant 

a)  Equipment  repairs 246 .  52 

6)  Reserve  to  replace  equipment 
(credited  to  "Equipment  Re- 
serve")   800.00 

c)  Heat 760.00 

d)  Light 290.00 

e)  Water 80.00 

f)  Rent 2,150.00 

g)  Insurance 80.00 

Instructional  f 

a)  Salaries 6,718.50 

6)  Supplies  and  expense 236.00 

Total 14,635.02 

Gain  transferred  to  "Surplus  Account,"  Table  II, 
p.  130 $      270.09 


140 


COLLEGE  AND  UNIVERSITY  FINANCE 


TABLE  IX 
Heat,  Light,  Power,  and  Water  Account 

The  total  cost  of  supplying  heat  and  water,  electric  hght  and 
power  for  the  year  1920-21  amounted  to  $21,535.  The  itemized 
list  of  disbursements  for  supplying  this  service,  together  with  the 
distribution  of  this  cost  between  the  academic  and  the  income- 
producing  activities  of  the  college  is  shown  below: 
Disbursements 
Engineer's  office 

Salaries $1,920.00 

SuppUes  and  expense 38 .  00 

Wages  of  power-plant  employees  2 ,  945 .  00 
Fuel  and  freight,  including  in- 
ventory of  July  1,  1920 ...  9,830.00 

Electric  current 2,888.00 

Water 1,132.00 

Repairs — building  and  equip- 
ment   1,563.00 

Reserve  to  replace  boilers  and 
equipment  (credited  to 
"  Equipment  Reserve  ")  •  •  •  2 ,  000 .  00 

Supplies  and  expense 498 .  00 

Insurance 36 .  00 

$22,850.00 
Inventory  of  coal  and  supplies, 

June  30,  1921 1,315.00 

Total  expense  of  year  1920-21 $21,535.00 

DISTRIBUTION  OF  TOTAL  EXPENSE 


Heat 

Light  and 
Power 

Water 

Totals 

College 

$13,055.00 

760.00 

2,500.00 

1,200.00 

$  1,588.00 
290.00 
688.00 
322.00 

$      372.00 

80.00 

360.00 

320.00 

$15,015.00 

1,130.00 

Dormitories 

3,648.00 

1,842.00 

Totals 

$17,515.00 

$  2,888.00 

$  1,132.00 

$21,535.00 

NoTB. — A  proportionate  amount  of  interest  on  cost  of  power  plant  has  been 
included  in  sums  cluirged  to  the  School  of  Music,  dormitories,  and  dining-halls,  and 
deduoted  from  the  college's  share  of  expense. 


TKJEASURER'S  REPORT  141 

TABLE  X 
Gifts  Paid  In  during  the  Fiscal  Year  Ending  June  30,  1921 

The  total  gifts  received  by  the  college  during  the  year  for 
additional  construction,  equipment,  and  for  current  uses  amounted 
to  $71,745.61,  distributed  as  follows: 

SUMMARY 

I.  Capital  account 

1.  For  additional  endowment $27,420.21 

2.  For  buildings  and  equipment 26,461 . 40 

$53,881.61 
II.  Current  uses 17,864.00 


Total $71,745.61 


details 
Capital  account 

1.  For  additional  endowment 
a)  General 
1908  Fund 

James  Brown $      300.00 

Mary  Grey 100.00 

John  Lamson 17.00 

$  417.00 
1913  Fund 

Jane  Jones $         2.43 

Patriotic  Fund 

William  Amster 50.00 

Class  of  1910 

Charles  Henry 40.00 

Undesignated 

A  friend 1,150.00 

Alumni  Association 

First  instahnent ... .  21,148.78 


$22,808.21 


142  COLLEGE  AND  UNIVERSITY  FINANCE 

TABLE  X— Continued 
Brought  forward $22,808.21 

6)  Restricted 

Sherman  Museum 

James  T.  Sherman.  .  $  612 .  00 
Scholarships 
Mary  W.  Ladd,  for 
tuition  of  boys 
living  in  Smith 
County  (subject  to 
5  per  cent  annuity)    4 ,  000 .  00 

4,612.00 

$27,420.21 

2.  For  buildings  and  equip- 
ment 
a)  Buildings 

Students'  Christian  As- 
sociation and  Rec- 
reation Building 
Mrs.  A.  B.  Swif t .  . . .  $15 ,  000 .  00 

Henry  Bond 3,500.00 

Justin  Smith 1,000.00 

Charles  WHder 500 .  00 

$20,000.00 
Remodeling    dormito- 
ries and  residences 
Samuel  Chapin   (to 
complete  fund) ...     1 ,  373 .  60 
6)  Equipment 
Art  Department 
Additional  sum  from 
Thomas  French .  .      5 ,  000 .  00 


Carried  forward . .  $26 ,  373 .  60    $27 ,  420 .  21 


TREASURER'S  REPORT  143 

TABLE  X— Continued 
Broiightforward..$2e,37S.Q0    $27,420.21 

Dormitories  and  resi- 
dences furniture 
Samuel  Chapin   (to 
complete  fund) ...  $        87 .  80 


26,461.40 

$53,881.61 


II.  Current  uses 

1.  For  Student  Loan  Fund 

Class  of  1914 $      234.00 

2.  Included  in  income  of  College  of  Lib- 

eral Arts 
a)  Books 

George  Walker  for 

English  books $      500 .  00 

Richard    Olney   for 

mathematic books,. .         200.00 


700.00 
6)  Scholarships 

James  Read  for  local  students. .        200 .  00 

c)  Prizes 

Charles  Howe  for  best  essay  on 
"Civil  Government" 100.00 

d)  General  expenses 

Northwest  Synod $12,430.00 

Mary  Avery 1,200.00 

Alumni  Association ...     2 ,  500 .  00 


16,130.00 
3.  For  student  aid 

Noah  Jones 500.00 

17,864.00 


Total $71,745.61 


144  COLLEGE  AND  UNIVERSITY  FINANCE 

SCHEDULE  I 
Investment  of  Endowment  Ftinds 

The  endowment  funds  of  the  college  on  June  30, 1921,  were  invested 
as  indicated  by  the  following  summary  and  Usts  of  investments: 


SUMMABT 


Amount 

Per- 
centage 
of  Total 

Average 
Yield 

I.  Fiinds  consolidated 

1.  Real  estate  owned  (see  p.  145} 

2.  Bonds  (see  p.  145) 

$    126,000.00 

475,212.60 

41,643.83 

1,040,545.00 

7.5 
28.2 

2.5 
61.8 

5.84 
4.98 

3.  Stocks  (see  p.  145; 

6.9 

4.  Real  estate  mortgages  (see  p.  146)  . . 

5.95 

Total 

$1,683,401.43 

100.0 

5.69 

II.  Funds  separately  invested 

1.  Bonds  (see  p.  147) 

$      12,840.00 
53,002.00 

19.5 
80.5 

4.4 

2.  Stocks  (see  p.  147) 

7.1 

Total 

$      65,842.00 

100.0 

6.6 

Total  carried  to  "Balance  Sheet," 
p.  128 

$1,749,243.43 

TREASURER'S  REPORT 


145 


SCHEDULE  I—CorUinued 
Investments  of  Endowment  Funds  in  Detail 


Face  Value 

Cost 

I.  Funds  consolidated 
1.  Real  estate  owned 

$      75,509.10 

60,490  90 

$    126,000.00 

2.  Bonds 
o)  Railway 

A.T.  &  S.F.  Ry.  Co.  4's 

$  25,000.00 

25,000.00 

25,000.00 

357.500.00 

$      18,962.50 

C.C.C.  &  St.L.  Ry.  Co.  Equipt. 

6*8 

25,000  00 

K.C.  Terminal  Ry.  4*8 

24,250.00 

349,250.00 

Total 

$432,500.00 

$    417,462  50 

6)  Public  utility 

$  35,000.00 

$      30,800.00 

c)   Industrial 

Western  Electric  Co.  5's 

$     2,500.00 

$        2,479.38 

d)  Government  and  municipal 

Chicago  West  Park  Com.  4's 

$  10,000.00 
4,400.00 
7,000.00 
3,000.00 

$      10,080  72 

U.S.  1st  Liberty  Loan  3  J^% 

4,390.00 

U.S.  3d  Liberty  Loan  4  M  % 

7 ,000  00 

U.S.  4th  Liberty  Loan  4  Ji% 

3,000.00 

Total 

$  24,400.00 

$      24,470.72 

Total  bonds. 

$494,400.00 

$    475,212.60 

3.  Stocks 
a)  Railway 

200  shares  C,  St.P.,  M.&O.  Ry. 
Co.  Pref.  7% 

20,000.00 
21,000.00 

$      19,600.00 
22.043.83 

b)  Industrial 

210  shares  U.S.  Steel  Corp.  Pref. 

7% 

41,000.00 

$      41,643.83 

146 


COLLEGE  AND  UNIVERSITY  FINANCE 
SCHEDULE  I— Continued 


Number 
of  Loans 

Amount 

4.  Real  estate  mortgages 
a)  City  mortgages 

1 
4 
1 

$      35,000.00 

55,000.00 

14,270.00 

6 

$    104,270.00 

h)  Farm  mortgages 

39 
9 
37 
30 
19 
15 
50 

$    141,225.00 

42,000.00 

Iowa 

233,800.00 

123,700.00 

South  Dakota 

68,000.00 

63,100.00 

Wisconsin 

264,450.00 

199 

$    936,275.00 

205 

$1,040,545.00 

Mortgage  loans  classified  as  to  interest  rate 

16  at  5% S  128,445.00 

25  at  5  Ji% 203,000.00 

147  at  6% 682,200.00 

17  at  7% 126,900.00 


205 


Average  rate  5.95% 


.$1,040,545.00 


TREASURER'S  REPORT 
SCHEDULE  I— Continued 


147 


Face  Value 

Cost 

II.  Funds  separately  invested 
The  Joseph  Hamm  Fund 
A.T.       S.F.  Ry.  Co.  Pref.  Stock  6% 

$16,000.00 

1,000.00 
6,000.00 
5,000.00 

$16,160.00 

Evansville  &  Terre  Haute  Ry.  Co.  1st  Mortgage 
6%  Bonds 

1,000.00 

Northern  Pacific  Ry.  Co.  Prior  Lien  4  %  Bonds . . . 
Union  Pacific  R.R.  and  T^and  Grant  4%  Bonds  . . 

5,940.00 
4.900.00 

$28,000.00 

$28,000.00 

The  William  Bushnell  Fund 

Inland  Steel  Co.  Ist  Mortgage  6%  Bonds 

$  1,000.00 

$  1,000.00 

The  Fleugel  Field  Fund 

United  Light  &  Ry.  Co.  Pref.  Stock  6% 

$12,500.00 

$11,500.00 

The  J.  T.  Sherman  Fund 

Consumers  Co.  Pref.  Stock  7  % 

$10,000.00 

8,600.00 

11,000.00 

$  8,300.00 

Consumers  Co.  Com.  Stock  7% 

7,912.00 

Northern  States  Power  Co.  Pref.  Stock  7% 

9,130.00 

$29,600.00 

$25,342.00 

Total 

$71,100.00 

$65,842.00 

III.  Classification 
1.  Bonds 

Railway 

$12,000.00 
1,000.00 

$11,840.00 

Industrial 

1,000.00 

$13,000.00 

$12,840.00 

2.  Stock 

Railway 

$16,000.00 
23,500.00 
18.600.00 

$16.160  00 

Public  Utility 

20.630.00 

Industrial 

16,212.00 

$58,100.00 

$63,002.00 

Total 

$71,100.00 

$65,842.00 

148 


COLLEGE  AND  UNIVERSITY  FINANCE 


SCHEDULE  II 

Investment  op  Annuity  Funds 


SUMMABT 


Cost 

$  68,300.00 

90,000.00 

Total  carried  to  "Balance  Sheet,"  p   128 

$158,300  00 

Investments  in  Detail 


Face  Value 

Cost 

I.  Funds  consolidated 
1.  Bonds 

A.T.  &  S.F.  Ry.  Co.  General  4's 

$20,000.00 
25,000.00 
10,000.00 

$18,400.00 

So.  Dak.  Rural  Credit  5's 

25,000.00 

U  S  4th  Liberty  Loan  4}^% 

8,870.00 

$55,000.00 

$52,270.00 

2.  Mortgages 

$16,030.00 

$68,300.00 

II.  Funds  separately  invested 

1.  The  George  Bouton  Annuity  Fund 

Black  Mill  &  Lumber  Co.  Com.  Stock  7  % 

Pullman  Co.  Com.  Stock  8% 

$15,000.00 

5,600.00 

15,000.00 

$15,797.00 
9,128.00 

Bogue  Phalia  Drain  Dist.  Bonds  6% 

15,075.00 

$35,600.00 

$40,000.00 

2.  The  Joel  Polleus  Annuity  Fund 

$20,000.00 
17,200.00 
17,000.00 

$16,600.00 

15,824.00 

United  Light  &  Ry  Co.  Pref .  Stock  6% 

17,676.00 

$54,200.00 

$50,000.00 

$90,000.00 

TREASURER'S  REPORT 


149 


SCHEDULE  III 
Buildings,  Grounds,  and  Equipment 
The  total  cost  of  the  college  campus,  buildings,  and  equipment  on 
Jime  30,  1921,  amounted  to  $750,843.50,  divided  as  follows: 


Inventory 
Value 


Cost 


1.  Buildings 

2.  Grounds 

3.  Equipment 

Total  carried  to  "Balance  Sheet,"  p.  128 


$563,600.00 

89,000.00 

171,650.00 


$512,580.80 

89,000.00 

149,262.70 


$824,250.00 


$750,843.50 


Type 

Built 

Cubical 
Contents 
Cu.  Ft. 

Additions 
during  Year 

Cost 
June  30,  1921 

1.  Buildings — 
o)  Educational 
Art  Hall 

Frame 

Stone 

Brick  and 

steel 

Stone 

Stone 

Stone 

Stone 

Stone 

Brick 

Brick  and 

concrete 

Stone 

1883 
1858 
1892 

1882 
1868 
1850 
1880 
1855 
1878 
1910 

1860 

50,300 
340,000 
520,000 

250,500 
128,000 
150,000 
420,400 
110,000 
60,200 
580,000 

180,800 

$     5,000.00 

34,300.00 

Gymnasium 

42,560.00 

50,000.00 

22,000.00 

Middle  Hall 

12,000.00 

30,000.00 

North  Hall    .  .  . 

11,000.00 

Observatory 

8,000.00 

82,000.00 

South  Hall ...  . 

20,000.00 

Total 

2.790,200 

$316,860.00 

6)   Dormitories 
Men 

Christie  Hall... 

Stetson  Lodge . . 
Women 

Brick 
Brick 

Frame 
Brick 

Frame 
Frame 
Brick 
Frame 
Frame 

1870 
1921 

1900 
1890 

1890 
1900 
1860 
1880 
1910 

250,000 
110,000 

68,000 
250,000 

80,000 
20,000 
90,000 
32,000 
18,000 

(1)  $15,000.00 
(1)    16,000.00 

$  49,650.00 
16,000.00 

10,000.00 

Underwood  Hall 
c)    Residences 

(1)      3,000.00 
(1)      3,000.00 

48,000.00 
17,000.00 

3,000.00 

15,300.00 

Sxilzer  Cottage.  .  . 
Sujwrintendent'a. . 

5,300.00 

2,630.00 

Total 

918,000 

(1)  $37,000.00 

$166,880.00 

150  COLLEGE  AND  UNIVERSITY  FINANCE 

SCHEDULE  in— Continued 


Type 

Built 

Cubical 
Contents 
Cu.  Ft. 

Additions 
during  Year 

Cost 
June  30.  1921 

d)  Central      Heating 
Plant 

Brick  and 
concrete 

1910 

130,000 

%  27,080.00 

e)   S.  C.  A.  and  Rec- 
reation  Building 
under    construc- 

(1)$  1,760.80 

$     1,760.80 

(1)  $38,760.80 

$512,580.80 

Additions 
during  Year 

Cost 
June  30,  1921 

2. 

Grounds 

$  87,000.00 

Fleugel  Field  (athletics) ^-4  acres 

2,000.00 

$  89,000.00 

Equipment 

Books 

3. 

(2)  $  3,050.00 

$  76,080.40 

20,140.30 

(1)     10,347.80 

63,042.00 

$13,397.80 

$149,262.70 

Note. — Items  under  "Additions"  marked  (1)  are  provided  from  special  funds, 
see  Schedule  VII,  p.  157;  the  item  marked  (2)  was  provided  by  $700  from  gifts,  see 
p.  143,  and  $2,350  from  current  funds. 


TREASURER'S  REPORT 
SCHEDULE  IV 


161 


Temporary  Investments  of  Building  and  Equipment  Funds 

On  June  30,  1921,  $143,750  of  the  funds  available  for  building 
construction  and  the  purchase  of  new  equipment  were  temporarily 
invested  as  follows: 


Face  Value 

Cost 

Certificate  of  Deposit  First  National  Bank — 4% 

U  S  Treasury  Certificates — 5  M% 

$35,000.00 
90,000.00 
19,000.00 

$  35,000.00 
90,000.00 

18,750.00 

Total  carried  to  "Balance  Sheet,"  p.  128 

$143,750.00 

152  COLLEGE  AND  UNIVERSITY  FINANCE 

SCHEDULE  V 
Endowment  Ftjnds 

The  endowment  funds  of  the  college  amounted  on  June  30,  1921,  to 
$1,767,424.47.  The  amoimt  invested  and  cash  uninvested  on  that 
date,  and  the  objects  for  which  the  income  was  used,  are  shown  below: 


Name  and  Object 


Amount  on 
July  1,  1920 


Additions 
1920-21 


Deductions 
1920-21 


Amount  on 
June  30,  1921 


I.  Unrestricted , 

II.  Restricted 

1.  President 

2.  Professorships.  . 

3.  Departmental.  . 

4.  Lectureships .... 

5.  Books 

6.  Building      mainte- 
nance   

7.  Grounds      mainte- 
nance   

8.  Scholarships 

9.  Student  aid , 

10.  Prizes 

11.  Dormitory  library. 
III.  Loss,  gain,  and  premi- 
um   


$    968,673.15 

40,000.00 

367,263.71 

35,730.00 

5,000.00 

32,415.00 

105,159.65 

11,500.00 

100,653.55 

40,000.00 

4,500.00 

14,000.00 

20,560.82 


$       22,808.21 


$      281.57 


612.00 


3,000.00 


7,000.00 


3,579.48 


749.13 


$    991,199.79 

40,000.00 

367,263.71 

36.342.00 

5,000.00 

32,415.00 

105,159.55 

11,500.00 

103,663.55 

33,000.00 

4,500.00 

14,000.00 

23,391.17 


Total $1,746,455.78  $      29,999.69  $  8,030.70 


Total  carried  to  "Bal- 

nace  Sheet,"  p.  129.. 

Invested   (Schedule  I, 


$1,767,424.77 


p.  144) $1,749,243.43. 


Cash  awaiting  invest- 
ment ("Balance 
Sheet,"  p.  128) 


18.181.34. 


Funds  consolidated, 
p.  154 $1,701,682.77 

Invested $1,683,401.43 

Cash  awaiting  invest- 
ment          18,181.34 


Funds    separately    in- 
vested, p.  154 

Invested 


65,842.00. 


66,842.00 


Total $1,767,424.77 


TREASURER'S  REPORT 
SCHEDULE  V— Continued 


153 


\ 


Name  and  Object 

Amount  on 
July  1,  1920 

Additions 
1920-21 

Deductions 
1920-21 

Amount  on 
June  30, 1921 

A.  Funds  consolidated — 
I.  Unrestricted 

$21,148.78 

$  21,148.78 

1901  Fund                

$328,083.22 
110,946.58 
386,765.37 

425.00 

742.00 

26,066.00 

100,000.00 

15,644.98 

328,083.22 

1908  Fund 

417.00 
2.43 

111,363.58 

1913  Fund 

Exp. 
$281.57 

386,486.23 

Class  of  1900           

425.00 

Class  of  1910 

40.00 
50.00 

782.00 

26,116.00 

100,000.00 

1,150.00 

16,794.98 

Total 

$968,673.15 

$22,808.21 

$281.57 

$991,199.79 

II.  Restricted 

$  40,000.00 

$  40,000.00 

2.  Professorships 

$  20,805.88 

5,000.00 

14,865.00 

326,592.83 

$  20,805.88 

5,000.00 

14,865.00 

Others  (list  in  detail) . . . 

326,592.83 

Total.  . 

$367,263.71 

$367,263.71 

3.  Departmental 

Biblical  (Blake) 

$     1,000.00 
10,000.00 

$     1,000.00 

Art  (Elsom) 

10,000.00 

Total 

$  11,000.00 

$  11,000.00 

4.  Lectureships 

Phillips  Missionary  . 

$     3,000.00 
2,000.00 

$     3,000.00 

2,000.00 

Total 

$     5,000.00 

$     5,000.00 

5.  Books 

Academy 

$        500.00 

500.00 

5,000.00 

26,415.00 

$        500.00 

Riirngide ,  , 

500.00 

Carey 

5,000.00 

Others  (list  in  detail) . . . 

26,415.00 

Total 

$  32,415.00 

$  32,415.00 

6.  Building  maintenance 
Observatory 

$     7,000.00 

88,506.09 

9,653.46 

$     7,000.00 

Science  Hall 

88,506.09 

South  Hall 

9,653.46 

Total 

$105,159.55 

$105,159.55 

154 


COLLEGE  AND  UNIVERSITY  FINANCE 
SCHEDULE  V— Continued 


Name  and  Object 

Amount  on 
July  1,  1920 

Additions 
1920-21 

Deductions 
1920-21 

Amount  on 
June  30, 1921 

8.  Scholarships 

Bimn 

$     3,500.00 

$     3.500.00 
3.000.00 

1,000.00 
96.153.55 

Clark 

Tfr. 
$  3,000.00 

1,000.00 
96,153.55 

Others  (list  in  detail) . . . 

Total 

$100,653.56 

3,000.00 

$103,653.65 

9.  Student  aid 

Dowling  Memorial .... 

$     1,000.00 
4,000.00 

$     1,000.00 

Education 

4,000.00 

Total 

$     5,000.00 

$     5,000.00 

10.  Prizes 

Art  Essay 

$         500.00 
1,000.00 
1,000.00 
1,000.00 

$        500  00 

Harrison  Memorial .... 

1,000.00 

Moehlman  Memorial . . 

1,000.00 

1,000.00 

Total 

$     3,500.00 

$     3,500.00 

11.  Dormitory  Library 
Underwood  Hall 

$  14,000.00 

$  14,000.00 

III.  Loss,  gain,  and  premium.  . . 

S  20,560.82 

$  3,579.48 

$      749.13 

$  23,391.17 

Total  funds  consoli- 

$1,673,225.78 

$29,387.69 

$  1,030.70 

$1,701,582.77 

B.  Fimds  separately  invested — 
Restricted 

$  24,730.00 

$      612.00 

$  26,342.00 

7.  Grounds  maintenance 
Fleugel  Field 

$  11,600.00 

$  11,500.00 

9.  Student  aid 

$  35,000.00 

$  7,000.00 

$  28,000.00 

10.  Prizes 

Bushnell,  William 

$     1,000.00 

$     1,000.00 

Total  funds  separately 
invested 

$  72,230.00 

$      612.00 

$  7,000.00 

$  65,842.00 

TREASURER'S  REPORT 
SCHEDULE  VI 


155 


Annxtities 

Endowment  funds  of  the  college  subject  to  annuities  amounted 
on  June  30,  1921,  to  $159,500.  The  amounts  invested  and  the  cash 
uninvested,  the  objects  for  which  established,  the  name  of  the  annui- 
tants, and  the  disposition  of  the  surplus  are  indicated  below: 


Name  and  Object 

Amount  on 
July  1,  1920 

Additions 

Deductions 

Amount  on 

June  30, 

1921 

Rate  of 
Annuity 

(Per- 
centage) 

Summary 
I.  Annuities  consoli- 

$  68,500.00 
90,000.00 

$4,000.00 

$     3,000.00 

$  69,500.00 
90,000.00 

II.  Annuities       sepa- 

Total 

$158,500.00 

$4,000.00 

$     3,000.00 

$159,500.00 

Total  carried  to  "Bal- 
ance Sheet,"  p.  129. 

Schedule  II,  p.  148) $158,300.00 

Cash  carried  to  "Bal- 
ance Sheet,"  p.  128 1,200.00 

Annuities  in  detail 
I.  Annuities  consoli- 
dated 
1.  General  endow- 
ment 
Benj.  L.  Smith . 

$  10,000.00 

25,000.00 
25,000.00 

3,000.00 
3.000.00 

$  10,000.00 

25,000.00 
25,000.00 

5 

2.  Instruction 

• 

4 

Thos.  P.  Moore 

4H 

3.  Scholarships 
Nath'l  Clark... 

Tfr. 
$     3,000.00 

3,000.00 
4,000.00 
2,500.00 

4 

Mary  W.  Ladd. 

$4,000.00 

5 

2,500.66 

4 

Total .... 

$  68,500.00 

$4,000.00 

$     3,000.00 

$  69,500.00 

II.  Annuities       sepa- 
rately invested 
1.  General  endow- 
ment 

$  40,000.00 
50,000.00 

$♦40,000.00 
♦50,000.00 

4.  Library    main- 
tenance 
Joel  Polleus . . . 

Total  

$  90,000.00 

$  90,000.00 

♦  Original  gift;  net  income  paid  to  annuitants. 


156 


COLLEGE  AND  UNIVERSITY  FINANCE 
SCHEDULE  Yl— Continued 


Income 
Received 
1920-21 

Annuities 

Paid 
1920-21 

Balance  in 

Excess  of 

Annuities  Paid 

$3,364.97 
6,022.00 

$3,075.00 
6,022.00 

$289  97 

II.  Annuities  separately  invested 

$9,386.97 

$9,097.00 

Carried  to  "Surplus  Account,"  Table  II, 
p.  130 

$289.97 

TREASURER'S  REPORT 


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COLLEGE  AND  UNIVERSITY  FINANCE 


SCHEDULE  X 
Reserves 

During  the  year  Reserves  were  increased  by  $4,149.40  as  shown 
below: 


Equipment  and  expense 

Dormitories 

Dining-halls 

Power  plant 

School  of  Music. . . . 
Annuity  income  reserve. 


Total. 


Total  reserves  carried  to  Balance  Sheet, 
p.  129 


Balance 
July  1,  1920 


$  4,418.72 

2,582.10 

2,100.00 

660.00 

970.46 


$10,731.28 


Added 
during 
1920-21 


$        41.43 

1,018.00 

2,000.00 

800.00 

289.97 


$  4,149.40 


Balance 
June  30,  1921 


$  4,460.15 
3,600.10 
4,100.00 
1,460.00 
1,260.43 


$14,880.68 


TREASURER'S  REPORT 


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164  COLLEGE  AND  UNIVERSITY  FINANCE 

NOTES   ON  TABLES   AND   SCHEDULES   IN  ANNUAL  REPORT 

The  following  notes  do  not  form  a  part  of  the  annual 
report  and  should  not  be  included  in  the  treasurer's  report. 
They  are  inserted  here  only  for  the  purpose  of  assisting  the 
financial  officers. 

Table  I. — This  table  gives  the  total  assets  of  the  college, 
$2,862,704.87,  and  shows  of  what  they  are  composed, 
namely:  $1,926,924.77  permanent  fund  assets,  67.3  per  cent 
of  the  total;  $895,943.15  buildings,  grounds  and  equipment, 
and  building  funds  temporarily  held,  31.3  per  cent  of  the 
total,  and  the  remainder,  $39,836.95  current  assets,  1.4 
per  cent  of  the  total.  The  permanent  funds  are  accounted 
for  exactly  by  investments  and  cash  awaiting  investment. 
The  manner  in  which  the  plant  funds  have  been  used  is 
shown,  and  the  amount  and  disposition  of  building  and  equip- 
ment funds  being  held  for  new  construction  are  indicated. 
The  constituent  parts  of  current  assets  and  current  funds  and 
liabihties  are  enimierated,  and  the  financial  condition  of  the 
college  in  this  respect  shown  to  be  good.  Thus,  to  meet 
the  accounts  payable  of  $7,462.13  there  is  cash  of  $9,549.79. 
The  sum  to  the  credit  of  special  funds  for  designated 
purposes,  $6,907.54,  is  offset  by  assets  of  cash,  $4,054.78, 
and  notes  receivable,  $2,852.76,  while  reserves,  $14,880.68, 
are  shown  to  be  invested  in  a  certificate  of  deposit  of  $14,000 
and  the  remainder  in  cash.  The  remainder  of  the  cur- 
rent funds,  $10,586.60,  consisting  of  credits  to  accounts, 
which  the  college  as  a  going  concern  will  have  always,  is 
accounted  for  by  sundry  good  current  assets  of  a  sort  which 
likewise  will  usually  be  found  in  a  college  in  operation. 

The  accounts  given  in  this  table  in  totals  only  are  fully 
explained  in  Schedules  I  to  X,  to  which  reference  is  made  by 
number  and  page  so  that  anyone  desiring  to  learn  the  par- 
ticulars may  be  able  to  do  so. 


TREASURER'S  REPORT  165 

From  Table  I  the  reader  should  be  able  to  obtam  a  clear 
idea  of  the  college's  financial  condition  on  June  30,  1921. 

Table  II. — From  this  table  the  surplus  resulting  from 
current  operations,  its  sources  and  disposition  may  be 
ascertained.  The  details  of  operation  of  each  unit  con- 
tributing to  the  surplus  may  be  learned  by  turning  to  the 
tables  to  which  reference  is  here  made. 

Table  III. — ^The  receipts  and  expenses  of  the  College 
of  Liberal  Arts  are  given  in  detail  imder  appropriate  headings 
in  this  table.  The  table  follows  the  budget  classification, 
but  combines  in  a  few  totals  items  which  are  kept  in  detail 
in  the  ledgers.  It  is  exceedingly  important  that  the  cost 
of  the  strictly  educational  work  of  the  college  and  the  income 
to  meet  it  may  be  disclosed.  Consequently,  this  table  gives 
the  educational  income  and  expenses  separately,  and  follows 
them  with  similar  information  regarding  certain  special 
items,  which,  though  they  pertain  to  the  college,  yet  do  not 
form  a  necessary  part  of  its  work.  By  means  of  this  divi- 
sion the  direct  cost  per  capita  of  educating  students  may  be 
ascertained,  if  in  addition  to  the  information  given  therein 
the  number  of  students  in  attendance  is  learned. 

Table  IV. — ^Analysis  of  the  educational  receipts  and 
expenses  of  the  College  of  Liberal  Arts  for  the  last  two  years 
as  to  sources,  appUcations,  and  percentages  is  given  in  this 
table.  It  is  very  interesting  and  informing  to  learn  what 
part  of  the  cost  is  met  from  each  kind  of  income,  and 
what  relation  the  principal  items  of  expense  bear  to  each 
other.  Any  favorable  tendency  may  thereby  be  encouraged, 
and  any  unfavorable  one  corrected  if  possible. 

Table  V. — ^This  table  discloses  the  result  of  operation 
of  the  dormitories  on  a  strictly  business  basis.  Rent  which 
includes  an  amount  for  depreciation  has  been  charged,  as  well 
as  all  other  expenses.    The  item  of  repairs  includes  renewals, 


166  COLLEGE  AND  UNIVERSITY  FINANCE 

as  well  as  repairs,  of  furniture  and  equipment.  The  cost 
of  building  repairs  is  included  in  the  rent.  The  college  income 
is  credited  with  the  amount  charged  for  rent  and  deprecia- 
tion, and  the  surplus  for  the  year  finally  carried  to  a  reserve 
for  the  benefit  of  the  dormitories. 

Tables  VI  and  VII. — These  tables  show  the  outcome 
of  the  operations  of  the  dining-halls  and  bookstores,  and  since 
they  are  made  on  the  same  plan  as  Table  V  do  not  require 
comment. 

Table  VIII. — This  table  gives  the  receipts  and  disburse- 
ments of  the  School  of  Music.  The  classification  followed 
accords  with  that  used  for  the  College  of  Liberal  Arts. 
Since  this  school  is  expected  to  be  self-supporting,  all 
legitimate  costs  have  been  included,  as  was  the  case  in  the 
other  departments  conducted  on  a  similar  basis.  In  addition 
to  similar  charges  found  in  those  departments,  a  charge 
of  $800  is  made  to  this  school  to  provide  an  equipment 
reserve  to  replace  pianos,  organs,  and  other  musical  equip- 
ment when  needed. 

Table  IX. — The  cost  of  operating  the  central  power 
plant  on  a  strictly  business  basis  is  shown  in  this  table. 
An  annual  charge  of  $2,000  has  been  made  and  carried  to 
equipment  reserve  to  build  up  a  fund  for  the  replacement 
of  boilers  and  machinery  when  needed.  The  cost  of  the 
plant  operation  has  been  allocated  to  the  departments  using 
its  services.  To  the  proportion  of  cost  chargeable  to  the 
School  of  Music,  dormitories,  and  dining-halls  has  been 
added  their  proportion  of  interest  on  the  original  cost  of  the 
plant  and  its  equipment,  and  a  similar  sum  credited  to  the 
charge  to  the  College  of  Liberal  Arts.  This  method  obviates 
charging  interest  on  the  whole  plant  and  crediting  it  to 
college  income,  and  increasing  the  charge  for  the  heat,  light, 


TREASURER'S  REPORT  167 

water,  and  power  furnished  to  the  College  of  Liberal  Arts 
by  its  proportion  of  the  interest  so  charged.  The  result  is 
the  same  in  both  cases  because  under  either  plan  the  net 
credit  to  the  college  is  the  proportion  of  interest  charged  to 
the  other  departments. 

Table  X. — This  table  reports  in  detail  the  gifts  actually 
paid  to  the  college  during  the  year.  They  are  classified  as 
to  capital  and  current,  and  so  arranged  that  it  is  not  necessary 
to  list  them  again  separately  in  other  portions  of  the  report. 
If  the  list  of  gifts  received  each  year  is  printed  annually  it 
is  possible  to  obtain  with  ease  the  total  of  gifts  up  to  date. 
It  is  a  good  plan  to  keep  a  card  ledger  account  with  each 
donor  and  post  to  it  any  gifts  which  he  may  make. 


Schedule  I. — The  investments  of  endowment  funds  are 
given  in  this  schedule.  The  kinds  owned,  their  average 
yield  as  of  June  30,  the  percentage  of  the  total  which  each 
kind  of  investment  is,  the  investments  belonging  to  the  funds 
which  have  been  consolidated  for  purposes  of  investment, 
those  belonging  to  funds  separately  invested,  and  details  of 
the  investments,  with  the  exception  of  real  estate  mortgages, 
may  all  be  found  herein.  Real  estate  mortgages  are  classified 
as  to  location  of  property  securing  them,  and  grouped  as  to 
cities  and  states.  The  number  and  amount  in  each  location 
are  shown  and  finally  a  classification  as  to  the  various  rates 
of  interest  received  is  given.  This  manner  of  reporting  real 
estate  mortgages  gives  more  information  than  a  Ust  of  the 
names  of  persons  from  whom  the  mortgages  were  taken, 
and  occupies  much  less  space. 

Schedule  II. — ^This  schedule  shows  the  investments 
belonging  to  annuity  funds  and  is  made  after  the  plan 
followed  in  Schedule  I. 


168  COLLEGE  AND  UNIVERSITY  FINANCE 

ScHEDUiiB  III. — The  plant  of  the  college  is  described  in 
detail  in  this  schedule.  From  it  one  may  learn  the  names 
of  the  buildings  and  the  purposes  for  which  they  are  used. 
The  type,  date  of  construction,  cubical  content,  and  cost  to 
date  are  indicated.  From  these  data  one  may  get  a  good  idea 
of  the  plant,  and  find  the  cost  per  cubic  foot  of  each  building. 
For  the  sake  of  comparison  with  cost  the  inventory  value 
of  the  buildings,  land,  and  equipment  is  shown  in  totals. 

Schedule  IV. — ^This  schedule  is  self-explanatory. 

Schedule  V. — In  this  schedule  the  endowment  funds 
are  shown  first  in  totals,  later  in  detail,  and  classified  as  to 
objects  for  which  the  income  is  to  be  used.  The  amount  at 
the  beginning  of  the  year,  the  changes  occurring  during  the 
year,  and  the  amoimt  of  the  funds  at  the  close  of  the  year 
are  all  indicated.  The  funds  which  are  consoHdated  and 
invested  together,  and  those  which  are  invested  separately 
are  also  shown.  From  this  schedule  full  information  may 
be  obtained  as  to  the  endowment  and  the  particulars  of  any 
changes  made  during  the  year. 

Schedule  VI. — This  schedule  gives  fuU  particulars 
regarding  the  annuity  funds  held  by  the  college,  and  the 
purposes  to  which  they  are  to  be  devoted  ultimately.  The 
rates  of  annuities  paid,  the  amount  of  income  received,  the 
amount  invested,  the  cash  uninvested,  and  the  changes 
occurring  dining  the  year  are  likewise  given. 

Schedule  VII. — The  building  and  equipment  funds 
which  are  being  held  and  augmented  by  interest  for  future 
use  are  described  in  this  schedule.  The  method  of  presenta- 
tion is  similar  to  that  used  in  previous  schedules  and  needs 
no  further  elaboration.  When  the  object  for  which  any  fund 
was  given  is  accompHshed  the  accounts  are  closed  into  the 
permanent  accounts  of  property  and  plant  funds  and  removed 
from  this  classification. 


TREASURER'S  REPORT  169 

Schedule  VIII. — ^Funds  for  objects  of  a  general  nature 
are  often  given  to  the  college,  which,  if  used  during  the  year 
in  which  they  were  given,  would  be  classified  under  "  General 
Funds  for  Designated  Purposes"  and  the  cash  deposited 
in  the  general  account  cash.  But  if  it  takes  several  years 
to  carry  out  the  purposes  of  the  gifts  it  is  better  to  include 
them  among  "Special  Funds  for  Designated  Purposes"  and 
carry  the  cash  in  the  special  bank  account. 

This  plan  insures  the  availabihty  of  the  cash  when 
needed.  Thus,  in  this  schedule  funds  for  making  loans  to 
students,  and  a  gift  for  lectures  on  the  labor  movement,  to 
be  spread  over  a  period  of  years,  are  included.  The  amount 
spent  for  the  lectures  is  also  included  among  the  income 
and  expenses  of  the  College  of  Liberal  Arts  as  part  of  its 
extra-curriculum  activities.  The  charges  during  the  year 
for  loans  made  to  students  and  the  income  received,  together 
with  additions  to  the  fund,  are  shown,  and  the  balances 
remaining  at  the  close  of  the  year  are  indicated. 

Schedule  IX, — In  this  schedule  is  given  a  list  of  the 
funds  to  be  used  for  restricted  purposes  of  a  general  nature. 
The  balance  at  the  beginning  of  the  year,  the  changes 
occurring  during  the  year,  and  any  balance  unexpended  at 
the  close  of  the  year,  are  all  listed  in  detail.  The  sources 
of  receipts  and  the  amount  received  from  each  source  are 
given,  and  the  amount  expended  indicated.  The  expendi- 
tures are  also  included  among  the  expenses  of  the  CoUege  of 
Liberal  Arts,  and  the  sum  equal  to  them  taken  from  the 
income  of  these  funds  and  included  in  the  College  of  Liberal 
Arts  income.  Any  balance  unexpended  is  carried  forward 
under  the  classification  of  this  schedule  to  next  year's 
account.  By  means  of  this  schedule  one  can  see  whether 
the  terms  of  restricted  gifts  are  observed,  an  advantage 
which  might  not  be  possible  if  the  sums  were  included  only 


170  COLLEGE  AND  UNIVERSITY  FINANCE 

in  the  accounts  of  the  College  of  Liberal  Arts  of  a  similar 
natiu-e. 

Schedule  X. — The  additions  made  to  Reserves  dming 
the  year  are  listed  in  this  schedule,  and  the  total  sums  on 
hand  on  June  30,  1921. 

Schedule  XI. — This  schedule  allocates  to  each  building 
used  for  educational  purposes  the  cost  of  maintenance  and 
upkeep,  classified  under  headings  descriptive  of  the  elements 
of  cost,  and  needs  no  special  explanation. 


I 


CHAPTER  X 
COLLEGE  ORGANIZATION 

THE   CHARTER 

The  charter  or  act  of  incorporation  of  an  endowed  college 
has  usually  been  granted  by  special  act  of  the  legislature,  or 
has  been  framed  in  accordance  with  the  statutes  of  the  state. 
Its  original  form — ^if  a  special  charter — ^is  seldom  altered 
because  certain  exemptions  and  rights  which  were  granted 
in  the  early  days  might  be  withdrawn  if  it  were  reconsidered 
by  present-day  legislators. 

The  charter  normally  recites  the  legal  name  of  the  body 
corporate  (a  title  which  must  always  be  used  in  signing 
contracts  or  other  legal  papers) ;  the  general  and  particular 
object  of  the  corporation;  the  location;  the  method  of 
management;  the  quahfications  and  number  of  trustees, 
their  term  of  office,  their  powers  and  duties,  and  the  method 
for  election  of  their  successors.  It  ordinarily  states  that  the 
corporation  does  not  have  capital  stock  and  was  not  organized 
for  profit;  that  it  may  sue  and  be  sued;  that  it  may  acquire, 
hold,  invest,  sell,  and  convey  both  real  and  personal  property, 
whether  obtained  by  gift,  grant,  bequest,  or  otherwise;  that 
it  may  serve  as  trustee  in  handhng  gifts  and  bequests; 
that  it  may  have,  use,  and  alter  a  seal;  that  the  governing 
body  has  power  to  prescribe  requirements  for  admission, 
graduation,  and  the  courses  of  study;  that  it  may  confer 
degrees,  diplomas,  and  honors;  that  it  may  employ  teachers 
and  others  under  such  conditions  as  it  may  determine;  that 

171 


172  COLLEGE  AND  UNIVERSITY  FINANCE 

it  may  make  by-laws  to  give  effect  to  the  provisions  of  the 
charter,  and  may  amend,  alter,  or  replace  them  when  neces- 
sary, subject,  however,  to  the  constitution  and  laws  of  the 
United  States  and  of  the  state.  In  brief,  the  governing 
body  is  usually  vested  "with  all  the  powers  necessary  or 
convenient  to  accomplish  the  object  and  perform  the  duties 
prescribed." 

THE   BOARD   OF  TRUSTEES 

From  the  recital  of  the  powers  contained  in  the  charter 
it  is  evident  that  supreme  authority  is  vested  in  the  board 
of  trustees,  but  it  will  be  observed  later  that  many  of  its 
duties  are  delegated  to  the  executive  officers  and  committees. 
The  trustees  of  an  endowed  college  usually  elect  their  own 
successors,  but  in  the  case  of  some  denominational  insti- 
tutions their  choice  may  be  restricted  to  persons  nomi- 
nated by  the  denominational  conference  or  convention. 
Occasionally  the  denominational  conference  or  convention 
elects  the  trustees.  In  order  to  secure  continuity  of  poUcy 
it  is  customary  so  to  arrange  the  term  of  office  and  the  date 
of  expiration  that  the  maximum  change  in  membership  tak- 
ing place  in  any  year  is  clearly  a  small  minority  of  the  board. 
Effective  service  by  a  trustee  is  dependent  upon  long 
acquaintance  with  the  institution  and  its  needs,  so  that 
changes  in  the  board  should  not  be  made  too  often.  The 
number  of  trustees  varies — commonly  from  fifteen  to  twenty- 
one  in  colleges  independent  of  control  by  rehgious  bodies;  to 
thirty-six  or  more  in  colleges  having  connection  with  denomi- 
national organizations.  (The  supposititious  college  herein- 
after described  as  "Endowed  College"  has  twenty-one 
trustees.) 


COLLEGE  ORGANIZATION  173 

It  is  worthy  of  commendation  that  busy  men,  burdened 
with  responsibilities,  willingly  devote  much  time  and  energy 
to  further  the  cause  of  higher  education,  and  give  material 
assistance  for  its  maintenance  and  development.  Because 
they  are  busy  men,  occupied  with  their  own  affairs,  the 
trustees  should  give  consideration  primarily  to  questions  of 
policy,  and  should  entrust  the  execution  of  poUcies  deter- 
mined to  committees  of  the  board  and  to  administrative 
oflBcers  of  the  college.  In  deciding  the  best  policy  for  the 
conduct  of  the  college  they  wiU  naturally  be  guided  by  the 
advice  and  experience  of  the  administrative  oflScers.  Search- 
ing and  careful  study  should  be  made  by  the  board  of  the 
reasons  given  by  the  officers  in  support  of  their  recommen- 
dations, because  a  critical  (but  sympathetic)  attitude  on  their 
part  toward  the  recommendations  of  the  college  officials 
will  be  of  benefit  to  the  college  and  will  develop  a  more  careful 
and  mature  judgment  on  the  part  of  the  officers  themselves. 

THE  BY-LAWS 

By-laws  are  designed  to  give  effect  to  the  provisions  of 
the  charter  or  the  articles  of  incorporation,  to  provide  for 
committees  and  officers,  and  to  specify  their  duties  and  the 
manner  in  which  they  shall  be  performed. 

In  response  to  numerous  requests  for  a  typical  set  of 
by-laws  the  following  have  been  prepared,  describing  suit- 
able methods  of  procedure  and  an  appropriate  division  of 
authority  and  responsibiUty. 

"Endowed  College"  is  supposed  to  have  about  five 
himdred  students,  approximately  Two  MiUion  Dollars  of 
endowment,  and  a  plant  costing  about  Nine  Hundred  Thou- 
sand Dollars.    In  a  college  of  this  size  it  is  neither  desirable 


174  COLLEGE  AND  UNIVERSITY  FINANCE 

nor  feasible  to  have  as  many  administrative  officers  as  in  a 
larger  coUege  or  university.  For  this  reason  the  checks  and 
balances  required  for  correct  business  management  cannot  be 
so  readily  provided.  It  has  seemed  best  to  assume  that  the 
treasurer  of  "Endowed  CoUege"  is  a  prominent  citizen  of 
the  community,  probably  a  banker,  with  wide  experience 
and  intimate  acquaintance  with  financial  afifairs,  but  unable 
to  devote  his  whole  time  to  the  college,  and  that  he  has  the 
general  oversight  and  custody  of  the  securities  and  property 
of  the  college,  while  the  secretary  and  business  manager  is 
the  chief  business  officer,  devoting  full  time  to  the  work 
and  filling  the  two  offices.  In  performing  the  duties  of 
secretary  he  will  attend  all  meetings  of  the  board  and  its 
committees,  will  keep  their  minutes  and  become  fully  con- 
versant with  their  poHcies  and  actions,  and  as  business 
officer  will  have  charge  of  the  business  and  accoimting  of 
the  institution,  directing  the  details  of  its  business  affairs. 
Under  the  arrangement  which  is  here  proposed  the  college 
obtains  as  treasurer  a  man  held  in  high  esteem,  and  as 
secretary  and  business  manager  a  competent  man,  occupying 
a  position  of  dignity  and  responsibihty  and  remunerated 
with  a  suitable  salary. 

In  drawing  checks  upon  the  funds  of  the  college  good 
business  practice  requires  the  signature  of  two  persons,  one 
as  maker,  the  other  as  countersigner.  Where  there  is  only 
one  business  officer  devoting  fuU  time  to  the  affairs  of  the 
college,  it  is  difficult  to  arrange  conveniently  to  give  effect 
to  this  principle.  In  the  case  of  "Endowed  College"  it  is 
suggested  that  the  business  manager,  as  chief  business 
officer,  prepare  and  sign  checks  on  all  the  funds  of  the  college, 
that  the  treasurer  countersign  those  drawn  on  endowment 
funds,  on  funds  for  special  purposes,  and  on  building  funds, 


COLLEGE  ORGANIZATION  175 

and  that  the  president,  or  some  person  authorized  by  the 
board  to  sign  in  his  place,  countersign  checks  on  the  general 
funds. 

STAFF  REQUIRED  FOR  BUSINESS  DEPARTMENT  OF  AN 
ENDOWED  COLLEGE  OF  MODERATE  SIZE 

The  question  may  be  asked :  Is  the  plan  of  administration 
here  outlined  an  expensive  one  to  maintain,  and  out  of  the 
reach  of  a  college  of  moderate  size  ?  The  plan  will  be  found 
no  more  expensive  than  that  which  many  colleges  now  have, 
and  its  result  cannot  but  be  much  more  satisfactory.  It 
calls  for  one  paid  officer  in  charge  of  all  the  business 
affairs  of  the  college.  His  position  is  of  sufficient  impor- 
tance to  warrant  a  respectable  salary  and  to  attract  a 
man  of  abiUty.  He  wUl  need  a  stenographer  and  a  book- 
keeper for  his  office,  both  of  whom  may  well  be  women.  At 
the  opening  of  the  year,  and  at  rush  periods,  the  help  of  a 
few  student  assistants  may  be  required.  The  engineer  in 
charge  of  the  power  plant  may  act  as  his  assistant  in  caring 
for  the  physical  plant.  The  increase  in  income  resulting 
from  prompt  collection  of  fees,  a  slight  increase  in  return 
from  endowments  due  to  careful  investment,  and  the  savings 
in  expense  resulting  from  wise  purchasing  and  economical 
use  of  equipment,  suppUes,  and  fuel,  may  more  than  equal 
the  annual  cost  of  the  department.  Aside  from  these 
considerations  the  impression  made  upon  friends  and  patrons 
of  the  college  by  good  business  management  pays  for  itself 
many  times  over. 


THE  BY-LAWS  OF  ENDOWED  COLLEGE 
COLLEGE  CITY,  ILLINOIS 

(Revised  and  Adopted  June  22,  1921) 

ARTICLE  I.      MEETINGS 

Section  1.  The  annual  meeting  of  the  Board  of  Trustees 

Meeting         of  Endowed  College  shall  be  held  at  College  City, 

Illinois,  on  the  day  next  preceding  the  annual 

commencement,  at  the  hour  of  10  a.m. 
SecUon2.  Regular  meetings  shall  be  held  on  the  third 

Meetings        Tuesday  of  October,  of  January,  and  of  April,  at 

the  hour  of  10  a.m. 
Section  3.  Noticc  of  all  regular  meetings  shall  be  mailed 

Meetings        to  each  member  of  the  board  by  the  secretary  at 

least  ten  days  prior  to  the  date  of  such  meetings. 
Section  4.  Special  meetings  shall  be  called  at  any  time 

Meetings        by  the  secretary,  upon  request  of  the  president 

of  the  board,  or  of  three  members  of  the  board, 

or  of  the  president  of  the  college, 
^ions.  'j'jjg  QQ^  fQj.  a  special  meeting  shall  state  the 

Special  nature  of  the  business  to  be  considered,  and  shall 

eeungs        |^^  mailed  at  least  five  days  before  the  day  on 

which  the  meeting  is  to  be  held. 
Section  6.  ^  meetings  shall  be  held  at  the  oflSce  of  the 

Place  of  **  _  , 

Meeting  board  uuless  otherwise  directed  by  the  president 
of  the  board,  or  by  the  Board  of  Trustees.  The 
place  of  meeting  shall  be  indicated  in  the  notice 
or  call  for  the  meeting. 

176 


BY-LAWS  OF  ENDOWED  COLLEGE 


177 


Seotion  8. 
Rules  of 
Order 


Section  9. 
Order  of 


Seven  members  of  the  board  shall  constitute    !«<'*'<"»'^- 

Quorum 

a  quormn  for  the  transaction  of  any  business 
except  the  election  of  officers  and  the  amendment 
of  by-laws,  when  a  quorum  shall  consist  of  a 
majority  of  the  board. 

General  parHamentary  rules,  as  modified  by 
rules  and  regulations  of  the  board,  shall  be 
observed  in  conducting  the  business  of  the  board. 

The  following  shall  be  the  order  of  business  at 
each  meeting  of  the  board,  but  the  rules  of  order   Business 
may  be  suspended  and  any  matter  considered  or 
postponed  by  action  of  the  board : 

CaU  to  Order 
I.  Roll  call 

II.  Consideration  of  minutes  of  last  regular 
meeting  and  any  special  meetuigs  held  sub- 
sequently, and  their  approval  or  amendment 

III.  Election  of  trustees  and  oflScers 

IV.  Reports  of  standing  committees 
V.  Reports  of  special  committees 

VI.  Reports  of  officers  and  agents 
VII.  Unfinished  business 
VIII.  New  business 
IX.  Petitions  and  conmumications 


ARTICJLE  II.      OFFICERS 


At  the  annual  meeting,  after  the  election  of 
trustees,  the  board  shall  proceed  to  organize  by 
electing  by  ballot  the  following  officers  to  serve 
for  one  year,  or  until  their  successors  shall  have 


Section  1. 
EHeotion 
of  OfiSoers 


178 


COLLEGE  AND  UNIVERSITY  FINANCE 


Section  2. 

Special 

Elections 


Section  3. 
Duties  of 
President 


Section  4. 
Duties  of 
Vice- 
President 


Section  5. 
Duties  of 
Treasurer 


been  elected  and  shall  have  qualified :  a  president, 
a  vice-president,  a  treasurer,  a  secretary,  and  a 
business  manager.  The  president,  vice-president, 
and  treasurer  shall  be  chosen  from  among  the 
members  of  the  board.  The  offices  of  secretary 
and  business  manager  may  be  held  by  one  person. 

In  the  event  of  a  failure  for  any  reason  so  to 
elect  any  or  all  of  said  officers,  or  in  case  any 
vacancy  occurs  in  said  offices  from  any  cause, 
then  an  election  may  be  held  at  any  regular  or 
special  meeting,  a  majority  of  all  the  trustees 
being  present  and  notice  of  such  election  having 
been  given  in  the  notice  of  the  call  for  the  meeting. 

The  president  of  the  board  shall  preside  at 
the  meetings  of  the  board  and  shall  discharge  the 
duties  which  ordinarily  pertain  to  that  office. 
He  shall  sign  all  diplomas  and  shall  execute,  with 
the  secretary  attesting,  contracts  and  instruments 
authorized  or  issued  by  authority  of  the  board 
requiring  his  signature. 

The  vice-president  of  the  board  in  the  absence 
or  disabihty  of  the  president  shall  perform  all  the 
duties  of  the  president  of  the  board.  In  the  ab- 
sence or  disabihty  of  the  president  and  the  vice- 
president  of  the  board,  the  chairman,  or  the 
acting  chairman,  of  the  Committee  on  Finance 
and  Investment  shall  act  as  president  of  the  board. 

The  treasurer  of  the  college  shaU  be  the 
custodian  of  the  funds  and  securities  belonging  to 
the  college,  and  shaU  keep  the  securities  in  a 
safety  deposit  vault  to  be  designated  by  the  board. 
He  may,  by  written  appointment  to  be  filed  with 
the  secretary,  designate  some  person  who  shall 


BY-LAWS  OF  ENDOWED  COLLEGE 


179 


represent  him  in  obtaining  access  to  the  securities 
of  the  college  as  herein  next  provided.  The  treas- 
urer shall  be  responsible  for  all  acts  of  his  repre- 
sentative. 

The  treasurer  shall  countersign  voucher 
checks  on  endowment  funds,  on  funds  for  special 
purposes,  and  on  building  funds  as  prepared  and 
signed  by  the  business  manager.  (See  Art.  II, 
Sec.  7.) 

He  shall  file  with  the  secretary  a  bond  for  the 
faithful  performance  of  his  duties  in  such  sum 
as  may  be  fixed  by  the  board,  and  if  not  so 
fixed,  then  in  the  sum  of  Seventy-five  Thousand 
Dollars  ($75,000),  with  some  responsible  surety 
company  approved  by  the  board;  the  premium 
on  said  bond  to  be  paid  by  the  college. 

In  case  of  the  absence  of  the  treasurer,  or  of 
his  inability  to  act,  or  in  case  the  office  becomes 
vacant,  his  duties  shall  be  performed  by  the 
chairman  or  acting  chairman  of  the  Committee 
on  Finance  and  Investment. 

Access  to  the  securities  of  the  college  shall  be 
had  by  not  fewer  than  two  persons  jointly  in  the 
following  manner,  and  never  otherwise: 

a)  By  the  treasurer  (or  his  representative) 
jointly  with  the  business  manager; 

6)  By  the  treasurer  (or  his  representative) 
jointly  with  the  chairman  or  acting  chairman 
of  the  Committee  on  Finance  and  Invest- 
ment; 

c)  By  the  treasurer  (or  his  representative) 
jointly  with  the  president  or  acting  president  of 
the  board. 


Surety 
Bond  of 
Treasurer 


Access  to 
Seoimties 


180  COLLEGE  AND  UNIVERSITY  FINANCE 

This  provision,  however,  shall  not  be  held  to 
exclude  the  presence  of  other  persons  at  the  same 
time,  providing  access  has  been  obtained  as 
aforesaid,  nor  shall  the  provisions  of  this  article 
be  held  to  prevent  the  Board  of  Trustees  from 
contracting  with  a  responsible  trust  company  to 
act  as  custodian  in  holding  and  keeping  safely 
said  securities,  and  to  make  dehveries  on  the 
order  of  any  two  persons  entitled  to  access  to 
said  securities  under  this  section. 
Duti^ot  The  secretary  shall  perform  the  usual  duties 

Secretary  pertaining  to  this  office.  He  shall  keep  full  and 
true  minutes  of  all  meetings  of  the  board  and  the 
meetings  of  all  standing  committees  of  the  board, 
and  of  such  special  meetings  as  shall  be  requested 
of  him.  He  shall  be  the  custodian  of  all  docu- 
ments conmiitted  to  his  care. 

He  shall  transmit  promptly  to  each  trustee  a 
copy  of  the  minutes  of  the  meetings  of  the  board 
and  of  its  committees,  and  he  shall  notify  all  per- 
sons concerned  of  the  actions  taken  by  the  board 
with  respect  to  appointments,  promotions,  terms 
of  service,  and  appropriations  for  their  work  and 
departments,  and  of  any  other  matter. 

He  shall  see  that  all  bonds  required  by  officers 
and  employees  of  the  college  for  the  faithful 
performance  of  their  duties  are  filed  in  his  office. 
The  business  manager  shall  furnish  the  secretary 
a  list  of  all  officers  and  employees  who  should  be 
bonded.  He  shall  have  the  custody  of  the 
corporate  seal  and  shall  with  it  attest  all  docu- 
ments requiring  a  seal. 


BY-LAWS  OF  ENDOWED  COLLEGE 


181 


The  business  manager  shall  be  the  chief 
business  officer  of  the  Board  of  Trustees,  and  shall 
be  the  chief  executive  head  of  those  departments, 
officers,  and  employees  of  the  college  not  attached 
to  the  instructional  staff.  He  shall  see  that  the 
rules  and  regulations  prescribed  by  the  Board  of 
Trustees  for  the  government  of  the  business 
affairs  of  the  college  are  faithfully  observed.  He 
shall  have  the  management  of  the  entire  college 
plant,  and  of  all  property  of  the  college,  whether 
real,  personal,  or  mixed.  He  shall  take  the  initia- 
tive in  seeking  investments  for  the  funds  of  the 
college,  and  shall  report  promptly  thereon  to  the 
Committee  on  Finance  and  Investment.  He  shall 
be  responsible  for  the  economical  purchase  of  all 
suppUes  and  materials  bought  by  the  college,  and 
shall  see  that  all  building  and  other  contracts 
made  by  the  board  are  faithfully  executed. 

The  business  manager  shall  collect  and  receive 
all  moneys  arising  from  gifts,  bequests,  or  other- 
wise, for  the  benefit  of  the  college,  and  all  fees 
and  money  from  any  source  due  to  the  college  or 
to  any  of  its  departments.  He  shall  deposit 
promptly  all  such  moneys  received  to  the  credit 
of  the  college  in  the  appropriate  bank  accounts 
in  such  state  or  national  banks  as  may  be  deter- 
mined by  the  Board  of  Trustees. 

He  shall  keep  proper  books  of  account,  fully 
setting  forth  the  financial  conditions  and  transac- 
tions of  the  college,  and  shall  exercise  a  general 
supervision  over  all  accounts  of  officers  and 
employees  of  the  college  which  have  to  do  with 


Section  7. 
Duties  of 
Business 
Manager 


Management 
of  Property 


Receipt 
of  Funds 


Supervision 
and  Keeping 
of  Accounts 


182 


COLLEGE  AND  UNIVERSITY  FINANCE 


Examination 
of  Acootints 


Methods  of 
Payment 


the  receipt  or  disbursement  of  funds  and  securi- 
ties, and  he  shall  obtain  true  and  full  reports  of 
all  such  receipts  and  disbursements  from  the 
officers  and  employees  aforesaid,  who  shall  keep 
their  accounts  in  such  manner  and  render  to  him 
such  statements  as  may  be  from  time  to  time 
required  by  him,  or  as  may  be  needed  to  show 
correctly  the  financial  condition  of  the  college,  or 
any  of  its  departments.  He  shall  supply  the 
board  and  the  committees  and  the  president  of 
the  college  with  such  statements  as  may  be 
required  of  him,  or  as  may  be  needed  to  show 
correctly  the  financial  condition  of  the  college  or 
any  of  its  departments. 

He  shall  examine  all  accounts,  claims,  and 
demands  against  the  college,  and  no  money  shall 
be  drawn  from  its  treasury  unless  the  amount 
thereof  be  adjusted  and  settled  by  him  and  found 
to  be  within  the  budget  appropriation,  or  provi- 
sion, therefor.  If  he  shall,  upon  the  examination 
of  any  account,  doubt  its  correctness  or  find  the 
appropriation  or  provision  insufficient,  he  shall 
submit  the  account  to  the  Committee  on  Finance 
and  Investment  for  its  decision.  No  money  shall 
be  drawn  from  the  treasury  except  by  checks 
prepared  and  signed  by  him  as  follows: 

a)  Voucher  checks  on  the  endowment  funds 
and  on  funds  for  special  purposes,  and  on  building 
funds,  for  purchases  and  payments  authorized  by 
the  Committee  on  Finance  and  Investment  or  by 
special  action  of  the  board;  said  voucher  checks 
to  be  countersigned  by  the  treasurer. 


BY-LAWS  OF  ENDOWED  COLLEGE 


183 


b)  Voucher  checks  on  current  funds  in  pay- 
ment of  bills  for  materials  and  suppUes,  provision 
for  which  has  been  made  by  the  board  or  the 
Executive  Committee,  approved  by  the  deans  or 
heads  of  departments;  said  voucher  checks  to  be 
countersigned  by  the  president  of  the  college  or 
some  person  authorized  by  the  Board  of  Trustees 
to  sign  in  his  place. 

c)  Checks  on  current  funds  for  salaries  and 
wages  as  fixed  by  the  board  or  the  Executive 
Committee,  or  certified  by  the  directors  of  depart- 
ments in  accordance  with  budget  provision  or 
other  appropriations;  said  checks  to  be  counter- 
signed by  the  president  of  the  college  or  some 
person  authorized  by  the  Board  of  Trustees  to 
sign  in  his  place. 

All  voucher  checks  shall  indicate  the  particular 
account  to  which  the  payments  are  chargeable 
and  the  person  to  whom  payable. 

The  business  manager  shall  give  a  bond  in 
favor  of  the  college  for  the  faithful  performance 
of  his  duties  in  such  sum  as  may  be  fixed  by  the 
board,  and  if  not  so  fixed,  then  in  the  sum  of 
Twenty-Five  Thousand  Dollars  ($25,000),  with 
some  responsible  surety  company  approved  by 
the  board,  the  compensation  of  such  surety  com- 
pany to  be  paid  by  the  college. 

He  shall  see  that  all  ofl&cers  and  employees    Surety 

Bonds  of 

in  all  departments  of  the  college  haying  custody    officers  and 
of  or  responsible  for  funds  and  securities  shall    ^™P'°y«^ 
furnish  bonds  in  such  amounts  as  shall  be  deter- 
mined and  fixed  by  the  Committee  on  Finance 


Surety 
Bond  of 
Business 
Manager 


184  COLLEGE  AND  UNIVERSITY  FINANCE 

and  Investment;  and  it  is  also  hereby  provided 
that  all  premiums  thereon  shall  be  paid  by  the 
college. 

The  business  manager  shall  also  perform  such 
other  duties  as  the  president  of  the  college  or 
the  Board  of  Trustees  may  from  time  to  time 
designate. 

In  case  of  vacancy  in  the  office  of  business 
manager,  or  of  his  absence  or  inability  to  act,  his 
duties  shall  be  performed  by  the  chairman  or 
vice-chairman  of  the  Executive  Conamittee. 

ARTICLE  III.      COMMITTEES   OF  THE   BOARD 

Section  1.  There  shall  be  six  standing  committees  of 

the  Board  of  Trustees,  namely : 
standing  q)  Executive  Committee 

Committees  ,  \    /^  •  -rr  i  x 

0)  Committee  on  Fmance  and  Investment 

c)  Committee  on  Instruction 

d)  Committee  on  Buildings  and  Grounds 

e)  Committee  on  Audit 
/)   Committee  on  Budget 

Section  2.  'pjjg   standing   committees,    other   than   the 

Appointment 

of  Committees  Committee  on  Budget,  shall  be  appointed  by  the 
president  of  the  board,  with  the  concurrence  of 
the  board,  at  the  annual  meeting,  or  as  soon 
thereafter  as  possible,  to  serve  until  their  succes- 
sors are  appointed.  In  making  the  appointments 
the  president  shall  designate  the  chairman  and 
vice-chairman  of  each  committee,  except  for  the 
Executive  Committee  and  the  Committee  on 
Budget. 

Sections.  Each  committee  appointed  as  aforesaid  shall 

Personnel  of  i  i  i      • 

Committees     consist  of  fivc  mcmbcrs  of  the  board,  and,  m 


BY-LAWS  OF  ENDOWED  COLLEGE 


185 


addition,  the  president  of  the  board  and  the 
president  of  the  college  as  members  ex  officio. 

Record  of  the  actions  of  each  conmiittee 
shall  be  kept  by  the  secretary  of  the  board,  and 
shall  be  reported  in  writing  to  the  board  at  its 
next  meeting  for  approval.  A  copy  of  the  minutes 
of  each  conmiittee  meeting  shall  be  sent  promptly 
to  every  member  of  the  board. 

Three  members  of  any  of  the  foregoing 
conmiittees  shall  constitute  a  quorum.  Meetings 
of  any  committee  shall  be  called  by  the  secretary 
whenever  requested  to  do  so  by  the  chairman  of 
the  committee,  by  the  president  of  the  board,  or 
by  the  president  of  the  college.  The  Executive 
Committee  shall  meet  regularly  on  the  last 
Friday  of  each  month  at  10  a.m.  All  committee 
meetings  shall  be  held  at  the  office  of  the  board, 
unless  otherwise  directed  by  the  chairman  of 
the  conmiittee.  The  place  of  meeting  shall  be 
indicated  in  the  notice. 

The  Executive  Committee  shall,  when  the 
board  is  not  in  session,  arrange  for  the  execution 
of  orders  and  resolutions  not  otherwise  specifically 
committed  or  provided  for.  It  may  fill  vacancies 
in  the  faculty  occurring  during  a  recess  of  the 
board,  and,  in  accordance  with  the  general  policy 
of  the  board,  shall  have  the  care  and  direction 
of  matters  pertaining  to  the  welfare  of  the 
college,  and  especially  shall  discharge  such  duties 
as  the  board  may  assign  to  it  from  time  to  time. 
It  shall  make  formal  report  of  its  actions  to  the 
board  at  its  next  regular  meeting.  The  president 
of  the  board  shall  be  chairman  of  the  Executive 


Section  4. 
Minutes  of 
Committeea 


Section  5. 
Quorum  of 
Committees 


Time  and 
Place  of 
Meeting 


Section  6. 
Duties  of 
Executive 
Committee 


186 


COLLEGE  AND  UNIVERSITY  FINANCE 


Section  7. 
Duties  of 
Committee 
on  Finance 
and 
Investment 


Classification 
of  Funds 


Hypotheca- 
tion of  Endow' 
ment  Funds 


Committee  unless  he  finds  it  inconvenient  or 
inexpedient  for  him  to  act.  In  that  case  the 
committee  shall  elect  its  own  chairman. 

The  Committee  on  Finance  and  Investment, 
acting  in  accordance  with  the  general  policy  and 
under  the  instructions  of  the  board,  shall  make  or 
cause  to  be  made  investments  of  all  college  funds 
available  for  investment.  This  committee,  dur- 
ing the  intervals  between  the  meetings  of  the 
Board  of  Trustees  and  of  the  Executive  Com- 
mittee, shall  have  authority  to  change  the  form 
of  investments  of  college  funds  and  to  make  new 
investments  in  amounts  aggregating,  but  not  ex- 
ceeding. One  Hundred  Thousand  Dollars  ($100,000) 
without  the  previous  approval  of  the  board,  and 
the  committee  shall  make  formal  report  of  all 
such  transactions  to  the  board  at  its  meeting  next 
following.  No  investment,  purchase,  or  sale  for 
the  account  of  endowment  funds  of  the  college, 
nor  any  contract  concerning  the  same,  shall  be 
made  by  the  treasurer  or  the  business  manager 
without  the  formal  approval  of  this  committee, 
which  shall  have  supervision  of  the  funds  of  the 
college. 

The  funds  of  the  college  shall  be  grouped  as 
follows: 

a)  Endowment  funds 

b)  Funds  for  special  purposes 

c)  Building  funds 

d)  Current  funds 

The  endowment  fimds  shall  neither  be  ex- 
pended nor  hypothecated  for  current  expenses, 


BY-LAWS  OF  ENDOWED  COLLEGE  187 

but  shall  be  retained  and  preserved  inviolate.  In- 
vestments of  endowment  fvmds  shall  be  made  as 
heretofore  provided  by  the  Committee  on  Finance 
and  Investment.  There  shall  be  no  restriction 
as  to  the  kinds  of  investments  which  may  be 
made,  except  as  hereinafter  provided,  but  other 
things  being  equal,  preference  shall  be  given  to 
securities  issued  by  the  federal  and  state  govern- 
ments, and  to  obligations  issued  by  cities  having 
over  twenty-five  thousand  inhabitants;  to  real 
estate  mortgages  on  improved  property,  prefer- 
ably in  the  state  of  Illinois  and  adjacent  states, 
but  in  no  case  shall  the  amount  loaned  on  mort- 
gages exceed  50  per  cent  of  a  fair  valuation. 

No  loan  shall  be  made  to  any  trustee,  oflScer,    certain 

Loans 

or  employee  of  the  college,  nor  to  any  religious,    Prohibited 
fraternal,  or  charitable  organization. 

Funds  for  special  purposes  shall  consist  of  all 
gifts,  grants,  donations,  and  bequests  for  special 
purposes,  whose  principal  and  income  may  be 
used,  and  shall  be  expended  or  invested  in 
accordance  with  the  terms  of  the  gift. 

Building  funds  shall  consist  of  all  gifts,  grants, 
donations,  and  bequests  for  the  erection  and 
equipment  of  buildings,  and  of  other  moneys 
and  properties  appropriated  or  assigned  by  the 
Board  of  Trustees  for  that  purpose. 

The  current  funds  shall  consist  of  income  on 
endowments,  tuition  receipts  and  other  fees, 
gifts,  grants,  or  bequests  for  current  purposes, 
receipts  from  business  and  commercial  operations 
of  the  college,  and  all  other  receipts  for  current  use. 


188 


COLLEGE  AND  UNIVERSITY  FINANCE 


Separation 
of  Funds 


Section  8. 
Duties  of 
Committee 
on  Budget 


Endowment  funds,  funds  for  special  purposes, 
and  building  funds,  shall  not  be  deposited  with 
or  combined  in  any  way  with  the  current  funds 
of  the  college. 

The  Committee  on  Budget  shall  consist  of  the 
chairman  of  the  four  committees  first  above 
mentioned,  together  with  the  president  of  the 
college,  the  president  of  the  board,  and  the 
secretary  and  business  manager,  and  shall  have 
supervision  over  the  bookkeeping  and  the  financial 
records  of  the  college,  and  shall  submit  to  the 
board  at  the  regular  April  meeting  for  its  consider- 
ation and  approval  a  budget  for  the  year  com- 
mencing on  the  first  day  of  the  following  July. 
The  budget  submitted  shall  include  an  itemized 
statement  of  the  probable  income  of  the  college 
available  for  its  expenses,  and  shall  indicate  the 
sources  from  which  the  income  is  to  be  derived. 
It  shall  also  give  an  itemized  fist  of  the  estimated 
expenses  for  the  year,  showing  in  detail  the  salaries 
to  be  paid  and  the  persons  to  whom  payable,  and 
separating  other  current  expenses  and  expenses 
for  books  and  equipment  by  departments.  The 
president  of  the  board  shall  be  chairman  of  this 
committee. 

The  budget,  when  approved  by  the  board, 
shall  be  the  authority  for  incurring  expenditures 
for  the  departments  included  therein.  It  shall 
be  the  duty  of  the  president  of  the  college 
and  the  business  manager,  acting  as  a  commit- 
tee on  expenditures,  to  make  distribution  of 
such  budget  appropriations  as  are  general  by 


BY-LAWS  OF  ENDOWED  COLLEGE 


189 


authorizing  expenditures  within  the  Umits  of 
such  appropriations,  subject  to  the  following 
procedure: 

Requisitions  upon  authorized  budget  appro- 
priations shall  be  made  by  the  administrative 
officers  of  the  college  and  heads  of  departments 
for  materials,  supplies,  services,  and  expenses 
before  any  expenditure  is  incurrred,  and  shall 
be  sent  to  the  president  and  the  business 
manager  for  approval.  No  requisition  shall  be 
approved  which  exceeds  the  amount  of  the  appro- 
priation available  without  reference  to  the 
Committee  on  Finance  and  Investment.  The 
business  manager  shall  give  effect  to  the  approved 
requisitions  either  directly  or  indirectly. 

The  Committee  on  Instruction  shall  consider 
all  changes  in  the  instructional  staff  proposed 
by  the  president  of  the  college,  and  shall  make 
recommendations  to  the  Board  of  Trustees 
regarding  the  members  of  the  instructional  staff, 
specifying  the  terms  of  their  employment,  in 
accordance  with  the  approved  budget.  It  shall 
also  be  the  duty  of  this  committee  to  examine 
the  system  of  instruction,  educational  manage- 
ment, rules,  discipline,  and  all  other  matters 
pertaining  to  the  educational  problems  of  the 
college,  and  to  report  and  make  recommendations 
thereon  to  the  board. 

The  Committee  on  Buildings  and  Grounds 
shall  exercise  supervision  over  the  care  and  control 
of  all  buildings,  grounds,  and  equipment  of 
the   college.    It   shall  once  a  year,  or   oftener 


Section  9. 
Duties  of 
Committee 
on 
Instruction 


Section  10. 
Duties  of 
Committee 
on  Buildings 
and  Grounds 


190 


COLLEGE  AND  UNIVERSITY  FINANCE 


Section  11. 
Duties  of 
Committee 
on  Audit 


if  necessary,  inspect  said  buildings,  grounds,  and 
equipment,  and  report  to  the  trustees  the  condi- 
tion of  the  same,  recommending  such  expenditures 
as  in  its  judgment  should  be  made  to  keep  them 
in  good  condition.  Report  of  its  inspection  shall 
be  made  at  the  January  meeting  of  the  board  in 
order  that  its  recommendations  may  be  consid- 
ered by  the  committee  preparing  the  annual 
budget.  It  shall  be  its  duty  to  see  that  the 
buildings  and  property  of  the  college  are  ade- 
quately insured. 

The  committee  shall  investigate  and  deter- 
mine the  need  for  new  buildings,  and  shall  report 
to  the  board,  recommending  suitable  sites.  It 
shall  be  responsible  for  the  preparation  of  plans 
and  specifications  of  such  new  buildings  as  the 
board  may  determine  upon;  it  shall  call  for  bids, 
and  shall  recommend  to  the  board  for  approval 
the  contractor,  or  contractors,  who,  in  its  opinion, 
shall  be  awarded  the  contract  for  any  construction 
authorized. 

The  Committee  on  Audit  shall  consist  of  five 
members  of  the  board,  not  including  the  treasurer 
and  members  of  the  Committee  on  Finance  and 
Investment,  and  shall  arrange  for  and  supervise 
the  annual  audit  of  the  books  and  securities  of 
the  college  by  a  firm  of  public  accountants. 
A  written  report  by  said  committee  of  its  exami- 
nation shall  be  made  at  the  regular  meeting  of 
the  board  in  October. 


i 


BY-LAWS  OF  ENDOWED  COLLEGE 


191 


ARTICLE  IV.   PRESIDENT  OP  THE  COLLEGE 

The  president  of  the  college  shall  be  a  member 
of  the  Board  of  Trustees  ex  officio,  and  shall  be 
the  head  of  all  educational  departments  of  the 
college,  exercising  such  supervision  and  direction 
as  will  promote  their  efficiency.  He  shall  pre- 
side at  the  meetings  of  the  faculty  and  shall  be 
the  official  medium  of  communication  between 
the  faculty  and  the  Board  of  Trustees,  and 
between  the  students  and  the  Board  of  Trus- 
tees. 

He  shall  recommend  to  the  board  through  the 
Committee  on  Instruction  aU  promotions  and 
appointments  for  the  faculty. 

He  shall  be  responsible  for  the  discipline  of 
the  college  and  for  carrjdng  out  all  measures 
officially  agreed  upon  by  the  faculty  concerning 
matters  committed  to  them  by  the  board,  and  for 
executing  such  measures  concerning  the  internal 
administration  of  the  college  as  the  Board  of 
Trustees  may  enact. 

He  shall  make  an  annual  report  to  the  Board 
of  Trustees  of  the  work  and  condition  of  the 
college,  and  from  time  to  time  shall  give  to  the 
board  reports  upon  the  condition  of  the  college, 
and  shall  present  for  their  consideration  such 
measures  as  he  shall  deem  necessary  or  expedient 
for  its  welfare. 

In  case  of  vacancy  in  the  office  of  the  president 
of  the  college,  or  of  the  absence  of  the  president, 


Section  1. 
Duties  of 
President 
of  College 


Section  2. 
Annual 
Report  of 
President 


Section  3. 

Acting 

Preaident 


192  COLLEGE  AND  UNIVERSITY  FINANCE 

or  of  his  inability  to  serve,  the  board  may  appoint 
an  acting  president  of  the  college. 


Section  1. 


Section  2. 


Section  3. 


ARTICLE   V.      THE    FACULTY 

The  faculty  shall  consist  of  the  president  of 
the  college,  the  deans  of  the  college,  and  the 
officers  of  instruction,  classified  as  follows:  the 
professor,  the  associate  professor,  the  assistant 
professor,  the  instructor,  and  the  assistant.  Only 
persons  of  the  rank  of  instructor  and  upwards 
shall  be  entitled  to  vote  at  meetings  of  the  faculty. 
Assistants  who  are  appointed  for  at  least  one  year 
may  attend  the  meetings  and  take  part  in  the 
deliberations,  but  shall  not  vote. 

The  faculty  shall  meet  monthly  during  the 
college  sessions,  and  shall  appoint  a  secretary  who 
shall  keep  a  record  of  their  proceedings.  They 
shall  make  such  rules  of  procedure  and  provide 
for  such  committees  as  may  be  required. 

The  faculty  shall  prescribe,  subject  to  ap- 
proval by  the  Board  of  Trustees,  requirements  for 
admission,  courses  of  study,  conditions  of  gradu- 
ation, the  nature  of  degrees  to  be  conferred,  rules 
and  methods  for  the  conduct  of  the  educational 
work  of  the  college,  and  shall  recommend  to  the 
board  candidates  for  degrees,  persons  to  receive 
the  award  of  fellowships,  scholarships,  and  prizes, 
and  candidates  for  honorary  degrees,  and  shall 
investigate  all  cases  of  misconduct  of  students, 
or  violations  of  rules  of  the  college  by  students, 
and  through  the  president  and  deans  shall 
administer  such  discipline  as  the  circumstances 


BY-LAWS  OF  ENDOWED  COLLEGE  193 

require.  They  shall  prescribe  rules  for  the  regula- 
tion of  student  publications,  athletics,  inter- 
collegiate games,  musical,  dramatic,  and  Uterary 
clubs,  and  other  student  affairs. 

ARTICLE  VI.      AMENDMENTS 

These  by-laws  may  be  amended  or  repealed 
at  any  regular  meeting  of  the  board  by  a  vote  of 
two-thirds  of  all  the  members  present,  provided 
a  majority  of  the  trustees  shall  be  present  and 
participating  in  the  meeting,  previous  notice  of 
the  nature  of  any  proposed  amendment  having 
been  given  at  least  one  regular  meeting  before 
action  thereon  shall  be  taken. 

ARTICLE  VII.      FORMER  BY-LAWS 

All  former  by-laws  are  hereby  repealed. 


APPENDIX 

WISCONSIN  TRUST  LAWS  AS  TO  INVESTMENTS  FOR 
TRUST  FUNDS 

CHAPTER  96 

Trust  funds;  investment;  securities;  bonds.  Section  21006. 
1.  Every  executor,  guardian,  or  trustee,  except  where  it  is  other- 
wise expressly  directed  by  the  will  or  instrument  of  trust,  if  any, 
may  invest  trust  funds  in  bonds  of  the  United  States,  and  also  in 
the  bonds  of  any  state  of  the  United  States,  except  the  states  of 
Nevada  and  Wyoming,  and  except  also  the  present  territories  of 
the  United  States  (and  such  territories  shall  continue  to  be  excepted 
after  admission  to  statehood);  in  the  bonds  which  are  a  direct 
obligation  of  any  city,  town,  village,  county,  or  school  district  in 
the  state  of  Wisconsin,  and  also  in  the  bonds  which  are  a  direct 
obligation  of  any  city  in  any  other  of  the  states  included  herein, 
having  a  population  of  not  less  than  twenty-five  thousand  and  also 
in  the  bonds  which  are  a  direct  obligation  of  any  county  in  any 
other  of  the  states  included  herein  having  a  population  of  not  less 
than  thirty-five  thousand,  provided  that  such  city  or  county  shall 
not  have  defaulted  in  the  payment  of  any  of  its  bonded  indebted- 
ness during  ten  years  immediately  preceding  such  investment,  and 
provided  further  that  the  existing  indebtedness  of  any  such  city  or 
coimty  be  restricted  under  the  laws  of  the  state  wherein  it  may  be 
situated,  to  a  siun  in  the  aggregate  not  exceeding  five  per  centiun  on 
the  value  of  the  taxable  property  therein,  to  be  ascertained  by  the 
last  assessment  for  state  and  county  taxes  previous  to  the  incurring 
of  such  indebtedness;  in  the  paid-up  stock  of  any  building  and 
loan  association  organized  under  the  laws  of  this  state;  in  the  bonds 
of  the  federal  or  joint  stock  land  banks  authorized  by  the  federal 
farm  loan  act  approved  July  17,  1916;  in  the  mortgage  bonds  of 
any  steam  railway  or  railroad  corporation  in  the  United  States 
owning  and  operating  not  less  than  five  hundred  miles  of  track, 
which  has  paid  dividends  upon  its  entire  capital  stock  for  ten  years 

194 


APPENDIX  195 

immediately  preceding  such  investment;  in  first  mortgage  bonds  of 
any  public  utility  corporation  as  defined  in  section  1797m,  1  of 
the  statutes,  or  any  street  railway  corporation,  operating  in  cities 
in  this  state  with  a  population  of  ten  thousand  or  over,  the  gross 
earnings  of  which  from  operation  of  the  property  covered  by  the 
mortgage,  for  each  of  five  fiscal  years  next  preceding  such  invest- 
ment, annually  amount  to  at  least  six  times  the  annual  interest 
charges  on  all  of  its  first  mortgage  indebtedness,  and  the  net  earn- 
ings of  which  from  operation  of  the  property  covered  by  the 
mortgage,  for  each  of  five  fiscal  years  next  preceding  such  invest- 
ment, above  operating  expenses  including  depreciation,  maintenance 
and  taxes,  annually  amount  to  not  less  than  ten  thousand  dollars, 
and  are  at  least  two  and  one-half  times  the  annual  interest  charges 
on  all  of  its  first  mortgage  indebtedness,  provided  that  such 
mortgage  on  such  pubhc  utiUty  or  street  railway  is  a  closed 
mortgage,  and  shall  have  been  outstanding  at  least  five  years,  and 
does  not  exceed  in  amount  one-half  of  the  value  of  the  physical 
property  covered  by  such  mortgage,  and  provided  further  that  such 
pubhc  utihty  or  street  railway  bonds  shall  mature  not  later  than 
ten  years  from  the  date  of  investment  of  such  trust  funds  therein 
under  this  section;  in  obhgations  secured,  whether  alone,  or  in  com- 
bination with  other  obhgations  on  a  parity  therewith,  by  first  real 
estate  mortgages,  or  trust  deeds,  on  improved  farm  property  or 
improved  urban  property  (other  than  pubhc  utility  or  street  rail- 
way property  except  as  herein  provided)  in  this  state  and  adjoining 
states,  the  amount  of  which  mortgages,  or  trust  deeds,  does  not 
exceed  one-half  of  the  actual  value  of  the  property  covered  thereby; 
and  in  promissory  notes,  which  are  amply  secured  by  pledge  of  any 
of  the  bonds,  real  estate  mortgages,  or  securities  in  which  invest- 
ment is  hereinbefore  authorized. 

2.  However,  the  proportion  of  any  one  trust  fund  that  may  be 
invested  by  an  executor,  guardian,  or  trustee  in  notes,  bonds,  or 
other  securities  in  which  investment  is  authorized  by  this  section, 
the  value  of  which  is  dependent  upon  the  same  persons,  firms, 
associations  of  pubhc  or  private  corporations,  shall  be  subject  to 
limitations  as  follows: 

a)  When  the  trust  fund  exceeds  two  thousand  but  does  not 
exceed  five  thousand  dollars,  fifty  per  cent  thereof,  unless  the 


196  COLLEGE  AND  UNIVERSITY  FINANCE 

investment  is  in  obligations  secured  by  a  first  real  estate  mort- 
gage; 

b)  When  it  exceeds  five  thousand  but  does  not  exceed  twenty 
thousand  dollars,  forty  per  cent  thereof,  unless  the  investment  is  in 
obhgations  secured  by  a  first  real  estate  mortgage  the  amount  of 
which  does  not  exceed  six  thousand  dollars; 

c)  When  it  exceeds  twenty  thousand  but  does  not  exceed  fifty 
thousand  dollars,  thirty  per  cent  thereof; 

d)  When  it  exceeds  fifty  thousand  dollars,  twenty  per  cent 
thereof. 

3.  Nothing  herein  contained  shall  be  construed  to  affect  the 
power  or  jurisdiction  of  any  court  of  the  state  of  Wisconsin  in 
respect  to  trusts  and  trustees,  nor  to  affect  any  powers  or  author- 
ity as  to  investments  conferred  by  will  or  other  instrument  of 
trust. 

4.  Nothing  in  this  act  contained  shall  affect  any  investment 
made  prior  to  the  enactment  hereof  or  affect  any  rights  or  interests 
established,  accrued,  or  created  thereunder  or  affect  any  suit  or 
action  pending  when  this  act  becomes  effective.  (1903  c.  317  s. 
1,  2;  1905  c.  284  s.  1,  2;  Supl.  1906  s.  2100b;  1907  c.  118;  1909  c. 
462;  1916  c.  536;  1915  c.  635  s.  3;  1917  c.  158;  1919  c.  228,  469; 
1919  c.  630  s.  2.) 

CHAPTER   185 

TriLst  funds;  person  holding  prohibited  from  dealing  in  margins. 
Sectign  4539w.  Any  person  engaged  in  the  business  of  receiving 
deposits  of  money  for  safe-keeping,  any  officer  or  employee  of  any 
bank,  banking  company,  or  trust  company,  any  executor,  adminis- 
trator, guardian,  trustee,  or  receiver,  or  any  other  person  holding 
property  or  money  in  any  manner  in  a  trust  capacity,  who  shall 
buy,  sell,  deal,  or  traffic  in  any  goods,  stocks,  grains,  or  other 
property  or  article  of  commercial  barter  by  making  or  requiring 
any  deposit,  payment,  or  pledge  of  any  margin  or  of  any  money 
or  property  to  cover  future  fluctuation  in  the  price  of  such 
goods,  stocks,  grains,  or  other  property  so  bought,  sold,  dealt,  or 
trafficked  in,  shall  be  punished  by  imprisonment  in  the  state  prison 
not  more  than  ten  years,  nor  less  than  one  year.    (1909  c.  347.) 


APPENDIX  197 

CHAPTER  V,  BY-LAWS  OF  REGENTS  (UNIVERSITY  OF 
WISCONSIN) 

TRUST   FUNDS 

Section  1.  The  State  Treasurer  shall  open  two  special 
accounts  of  the  University,  the  first  of  which  shall  be  called  "The 
University  Trust  Funds";  and  the  second,  "The  University  Trust 
Funds  Income."  All  moneys  received  on  account  of  the  principal 
of  any  trust  fund  shall  be  credited  to  the  account  designated  "The 
University  Trust  Funds,"  and  all  moneys  which  shall  be  invested 
from  or  on  account  of  the  said  funds,  or  otherwise  lawfully  disbursed 
from  the  principal  thereof,  shall  be  debited  to  the  said  account,  so 
that  the  balance  thereof  on  the  books  of  the  State  Treasurer  shall 
at  all  times  disclose  the  actual  cash  on  hand  belonging  to  the  princi- 
pal of  said  funds.  There  shall  henceforth  be  credited  to  the  account 
designated  "The  University  Trust  Funds  Income,"  as  the  same 
shall  be  received  by  the  State  Treasurer,  all  interest,  dividends,  or 
other  income  produced  in  any  form  by  or  from  any  securities  or 
investments  of  the  said  "University  Trust  Funds."  When  loans 
or  investments  shall  be  made  as  hereinbefore  provided,  a  certificate 
of  the  amount,  and  of  the  particulars  thereof,  shall  be  made  by  the 
Committee  on  Trust  Funds  to  the  Secretary  of  State,  who  shall 
issue  his  warrant  on  the  State  Treasurer  therefor,  mentioning  the 
same  as  a  disbursement  from  "The  University  Trust  Funds";  and 
there  shall  at  the  same  time  be  dehvered  to  the  State  Treasurer,  for 
his  custody  as  provided  by  law,  all  securities  and  papers  relating 
thereto  taken  for  such  loan  or  investment.  When  any  loan  shall 
be  paid,  or  the  principal  of  any  investment  reaUzed  or  reimbursed 
in  full,  the  State  Treasurer  shall  at  once  certify  the  fact,  with  proper 
description  of  the  security  discharged,  to  the  Secretary  of  the  Board, 
who  is  authorized  thereupon  to  execute  on  behalf  of  the  Regents  of 
the  University  any  proper  satisfaction,  discharge,  or  acquittance 
which  may  be  necessary  to  release  any  security  upon  the  pubUc 
records  or  otherwise;  and  to  make  any  assignment,  transfer,  or 
reconveyance  which  shall  be  requisite  or  convenient  for  that  purpose 
on  the  part  of  the  Regents  of  the  University  of  Wisconsin;  and  the 
Secretary  is  authorized  thereafter  to  affix  thereto,  when  necessary, 


198  COLLEGE  AND  UNIVERSITY  FINANCE 

the  corporate  seal  of  the  University  as  the  act  of  the  Regents,  and 
shall  report  thereupon  immediately  to  the  Chairman  of  the  Com- 
mittee on  Trust  Funds, 

Whenever  the  Regents  of  the  University  shall  receive  by  gift, 
bequest,  or  other  donation  any  income-producing  fund  they  shall 
certify  and  pay  over  the  amount  thereof  to  the  State  Treasurer 
who  shall  credit  the  same  to  the  principal  of  the  account  of  "The 
University  Trust  Funds"  and  the  same  shall  become  a  part  of  the 
principal  of  said  account  and  all  income  derived  therefrom  shall  be 
likewise  credited  to  "The  University  Trust  Funds  Income";  and 
at  the  time  of  so  certifying  a  duplicate  thereof  shall  be  sent  to  the 
Secretary  of  State,  in  order  that  he  may  make  the  proper  entries 
upon  his  accoimts.  At  the  same  time  the  Secretary  of  the  Board 
shall  open  proper  accounts  on  the  books  of  the  University,  as  in 
cases  before  provided  for. 

At  the  close  of  the  30th  day  of  June  in  each  year,  the  State 
Treasurer  shall  make  a  statement  showing  the  total  amount  received 
by  him  and  credited  to  the  account  of  "The  University  Trust  Funds 
Income"  during  the  fiscal  year  ending  on  that  date,  with  the  par- 
ticulars thereof  in  respect  to  dates,  amounts,  and  respective  secu- 
rities or  investments  from  which  the  same  was  derived,  and  shall 
transmit  the  same  to  the  Secretary  of  the  Regents,  who  shall 
thereupon  make  the  proper  entries  as  hereinafter  directed.  The 
State  Treasurer  shall  likewise  at  the  same  time  make  a  separate 
account  showing  the  balance  on  hand  at  the  beginning  of  the  fiscal 
year  in  the  account  of  "The  University  Trust  Funds,"  the  amount 
received  during  the  year  to  the  credit  of  such  account  and  the 
amount  debited  thereto,  with  the  particulars  in  either  case  of  dates, 
amounts,  and  the  respective  sources  from  which  receipts  were 
derived  or  the  purposes  for  which  disbursements  were  made;  and 
shall  also  furnish  at  the  same  time  a  list  of  the  securities  and  invest- 
ments in  his  hands  with  the  balance  of  the  principal  thereof 
remaining. 

Section  2.  The  Secretary  of  the  Board  shall  keep  an  account 
entitled  "The  State  Treasurer's  University  Trust  Funds,"  and  an 
account  entitled  "The  State  Treasurer's  University  Trust  Funds 
Income,"  both  of  which  shall  be  cash  accounts  showing  the  true 


APPENDIX  199 

state  of  the  moneys  remaining  in  the  hands  of  the  Treasurer  on 
accomit  of  the  Trust  Funds  and  all  the  moneys  received  as  income 
therefrom;  and  shall  be  entirely  separate  and  apart  from  the 
general  account  of  the  State  Treasurer  with  the  University  for 
receipts  and  disbursements  on  account  of  the  University's  general 
income.  The  Secretary  of  the  Board  shall  also  keep  an  account 
designated  as  "The  Trust  Funds  Investments,"  to  which  shall  be 
charged  the  principal  sums  invested  on  account  of  the  loan  of  the 
trust  funds,  or  other  investments  thereof,  for  income  and  to  which 
shall  be  credited  the  payments  received  on  account  of  the  principal 
thereof  from  time  to  time.  Whenever  any  sums  which  have  been 
invested  shall  be  repaid  on  account  of  principal,  the  amount  thereof 
will  be  debited  to  the  State  Treasurer's  "University  Trust  Funds" 
and  credited  to  the  account  of  "Trust  Funds  Investments,"  so 
specifying  particulars  that  the  latter  account  shall  always  show  the 
several  investments  and  the  respective  amounts  of  each  thereof. 
Whenever  receipts  are  made  on  account  of  the  principal  of  any  of 
the  trust  fimds  therein  by  reaUzation  of  assets  not  previously 
entered  in  money  account,  or  by  further  donations,  the  amount 
thereof  shall  be  charged  to  "The  State  Treasurer's  University  Trust 
Funds"  and  credited  to  the  proper  trust  fund  accoimt.  Any  dis- 
bursements, or  loss,  on  account  of  the  principal  of  any  of  said  trust 
funds  shall  be  credited  to  the  State  Treasurer's  account  and  debited 
to  the  proper  trust  fund.  If  such  loss  shall  consist  in  the  failure  to 
collect  any  investment,  the  amount  thereof  shall  be  apportioned 
to  and  debited  to  the  several  trust  funds  in  accordance  with  the 
relation  of  the  principal  of  each  to  the  aggregate  of  the  whole,  as 
hereinafter  provided  for  apportionment  of  income,  except  in  such 
cases  as  the  same  shall  be  taken  from  the  income  and  charged  to 
"The  University  Trust  Funds  Income"  by  order  of  the  Board. 

Upon  the  receipt  of  the  State  Treasurer's  statement  made  at 
the  close  of  the  30th  day  of  June,  of  each  year,  the  Secretary  shall 
charge  to  "The  State  Treasurer's  University  Trust  Funds  Income" 
the  net  amount  of  annual  income  derived  from  all  the  investments 
of  the  trust  fimds,  and  shall  at  the  same  time  apportion  and  credit 
to  the  several  income  accounts  of  the  several  trust  funds  such  share 
of  the  total  net  income  as  the  amoimt  of  principal  of  each  of  said 


200  COLLEGE  AND  UNIVERSITY  FINANCE 

trust  funds,  as  shown  by  the  balance  thereof  on  the  first  of  the 
fiscal  year  then  closed,  shall  bear  to  the  aggregate  of  the  principal 
of  all  the  trust  funds  on  that  date,  due  computation  being  entered 
on  the  journal.  Payments  made  out  of  the  income  of  the  several 
funds  shall  then  be  debited  to  such  respective  fund  income  credited 
upon  warrant  drawn,  to  the  "State  Treasurer's  Univ^sity  Trust 
Funds  Income,"  so  that  the  balance  standing  to  the  debit  of  the 
latter  account  will  always  be  equal  to  the  aggregate  of  the  balances 
standing  to  the  credit  of  the  several  trust  funds  income  accounts, 
and  the  balance  standing  to  the  debit  of  "The  State  Treasurer's 
University  Trust  Fimds"  and  to  the  debit  of  "The  State  Treasurer's 
University  Trust  Funds  Income"  will  always  show  the  balance  of 
moneys  in  his  hands  belonging  to  the  University's  Trust  Funds,  and 
the  produce  thereof,  and  thus  be  kept  distinct  and  separate  from 
the  general  accounts  of  the  University. 

Section  3.  Payments  from  the  income  of  each  of  the  several 
trust  funds  mentioned  in  section  1,  except  the  Adams  Fellowship 
Fund,  shall  be  made  annually  in  accordance  with  the  law  governing 
the  respective  fund  as  hereinafter  provided;  but  no  payment  shall 
be  made  until  the  income  shall  have  been  reaUzed  and,  upon  the 
statement  of  the  State  Treasurer,  credited  to  the  proper  income 
account.  Such  part  of  the  income  derived  on  accoimt  of  the 
Charles  K.  and  Mary  M.  Adams  Fellowship  Fund,  as  required  by 
the  wills  by  which  said  fund  was  bequeathed,  shall  be  immediately 
transferred  to  the  capital  of  said  fund,  and  for  that  purpose  immedi- 
ately upon  the  receipt  thereof  the  proper  amount  shall  be  certified 
to  the  Secretary  of  State  who  shall  draw  his  warrant  for  the  transfer 
thereof  from  "The  University  Trust  Funds  Income  Account"  to 
"The  University  Trust  Funds"  and  proper  entries  shall  be  made 
by  the  Secretary  upon  the  accounts  aforesaid  on  the  books  of  the 
University  to  show  the  same  by  crediting  the  proportionate  share 
of  income  accruing  to  that  fund  to  the  capital  of  said  funds  by 
debiting  the  "State  Treasurer's  University  Trust  Funds"  with  the 
amount  thereof. 

Section  4.  All  loans  and  investments  of  moneys  belonging  to 
the  trust  funds  shall  be  made  by  the  Committee  on  Trust  Funds 


APPENDIX  201 

from  time  to  time  as  moneys  may  be  in  the  hands  of  the  State 
Treasurer  therefor,  and  the  same  shall  be  certified  to  the  Secretary 
of  State  in  the  manner  required  for  the  certification  of  accounts  so 
that  the  proper  warrant  may  be  drawn  therefor  upon  the  Treasurer. 
For  this  piuT)ose,  the  Committee  on  Trust  Funds  may  make  such 
certification  at  any  convenient  time  and  obtain  the  money  when 
necessary  and  they  shall  promptly  place  in  the  custody  of  the  State 
Treasurer  all  securities,  abstracts  and  other  papers  received  for 
every  loan  or  investment.  Every  such  transaction  shall  be 
entered  in  the  recorded  minutes  of  the  Committee  on  Trust 
Funds  and  reported  at  the  next  following  meeting  of  the  Board 
of  Regents. 

All  mortgages  taken  to  seciu-e  loans,  and  the  transfer  of  all 
collateral  securities  for  loans,  shall  be  made  to  "The  Regents  of 
The  University  of  Wisconsin."  The  Committee  on  Trust  Funds 
is  also  authorized,  at  any  time  when  in  their  discretion  it  shall  be 
to  the  best  interests  of  the  trust  funds,  to  sell  to  any  purchaser, 
upon  such  terms  as  they  shall  deem  fit,  any  properties,  whether 
real  estate  or  personal,  belonging  to  any  of  the  trust  funds  of  the 
University;  and  also  to  sell  any  securities  held  by  investment  of 
the  trust  funds,  or  any  part  thereof;  and  also,  to  compound  and 
settle  any  loans  in  which  any  of  the  trust  funds  are  invested,  or 
any  debt  due  on  account  of  the  said  trust  funds;  and  in  any  and 
every  such  case,  they  may,  by  resolution  entered  on  their  minutes, 
require  and  authorize  the  President  and  Secretary  of  the  Board  to 
execute  and  deliver  a  proper  conveyance,  transfer,  assignment, 
release,  and  satisfaction,  or  other  instrument  requisite  to  give  full 
effect  to  their  action. 

Section  5.  The  provisions  of  this  by-law  relate  only  to  the 
trust  fimds  of  the  University  created  for  production  of  income  and 
not  to  gifts,  in  any  form,  where  it  is  directed  or  in  any  way  provided 
that  the  principal  of  the  gift  shall  be  expended  or  bestowed  either 
during  the  current  year  or  within  any  short  period  thereafter.  All 
such  gifts  or  donations  in  any  form,  the  principal  of  which  is  to 
be  expended  shall  be  deposited  with  the  current  receipts  and 
administered  by  the  Committee  on  Trust  Funds. 


202  COLLEGE  AND  UNIVERSITY  FINANCE 

TRUST  FUNDS  AND  THEIR  MANAGEMENT 
(From  chapter  17) 

University  Fund.  Section  248.  All  moneys  paid  into  the 
treasury  on  account  of  the  capital  of  the  University  Fund  shall  be 
and  remain  a  separate  and  perpetual  fund  as  required  by  the  con- 
stitution; and  the  interest  derived  therefrom  and  from  unpaid 
balances  of  purchase  money  on  sale  of  University  lands  and  all 
other  revenues  derived  from  the  University  lands  shall  constitute 
the  University  Fund  income. 

Agricultural  College  Fund.  Section  249.  1.  All  moneys  paid 
into  the  treasury  on  account  of  the  sales  of  Agricultural  College 
lands  shall  be  and  remain  a  separate  and  perpetual  fund,  the  capital 
of  which  shall  continue  forever  undiminished,  to  be  called  the  Agri- 
cultural College  Fund;  and  the  interest  derived  therefrom  and 
from  unpaid  balances  of  purchase  money  on  sales  of  such  lands  and 
all  other  revenues  derived  from  such  lands  shall  constitute  the  Agri- 
cultural College  Fund  income.  If  any  portion  of  such  fund  shall 
by  any  action  or  contingency  be  diminished  or  lost,  the  Secretary 
of  State  shall  add  to  the  next  state  tax  to  be  levied  thereafter  a 
sum  sufficient  to  replace  the  same,  to  be,  when  collected,  credited 
to  said  fund. 

2.  If  for  any  year  the  income  from  the  Agricultural  College 
Fund  is  less  than  five  per  centum  on  the  principal,  the  Regents  of  the 
University  are  authorized  and  required  to  transfer  from  the  Uni- 
versity Fund  income  to  the  Agricultural  College  Fund  income  an 
amount  necessary  to  meet  the  difference  between  the  interest 
actually  received  and  the  amount  which  would  have  been  yielded 
had  the  income  been  at  the  rate  of  five  per  centum. 

In  what  made.  Section  258.  1.  The  said  commissioners  of 
the  pubhc  lands  shall,  in  their  discretion,  invest  the  moneys  belong- 
ing to  the  School  Fund,  the  University  Fund,  the  Agricultural 
College  Fimd,  and  the  Normal  School  Fund,  from  time  to  time  as 
such  moneys  may  be  paid  into  the  treasury,  keeping  separate  the 
investments  of  each  fund,  in  the  following-named  stocks  and  loans, 
but  in  no  other  manner,  to  wit : 

1)  In  the  purchase  of  the  bonds  of  this  state,  to  be  replaced  by 
certificates  of  indebtedness  as  hereinafter  provided. 


APPENDIX  203 

2)  In  loans  to  school  districts  in  the  state,  or  to  the  school 
directors  of  any  town  therein  in  which  the  township  system  of 
schools  exists,  as  hereinafter  provided,  for  the  purpose  of  erecting 
school  buildings  or  refunding  their  indebtedness,  but  for  no  other 
purpose. 

3)  In  approved  mortgages  on  agricultural  lands  as  provided  in 
section  258m  of  the  statutes. 

3a)  In  county  bonds  issued  under  the  authority  conferred  by 
section  697,  60  of  the  statutes. 

4)  In  the  bonds  of  the  United  States,  Maine,  New  Hampshire, 
Vermont,  Massachusetts,  Rhode  Island,  Connecticut,  New  York, 
Ohio,  Michigan,  Illinois,  and  Iowa,  and  in  the  bonds  of  cities, 
villages,  towns,  and  counties  of  this  state  issued  pursuant  to  law 
since  the  adoption  of  the  amendment  to  section  3  of  article  XI  of 
the  constitution  of  this  state;  all  such  bonds  to  be  deposited  with 
the  State  Treasurer. 

5)  In  loans  to  towns,  villages,  cities,  counties,  and  boards  of 
education,  duly  incorporated  as  such,  of  any  city  within  this  state, 
as  hereinafter  provided;  and  every  such  town,  village,  city,  county, 
and  board  of  education,  is  empowered  to  borrow  of  said  com- 
missioners, from  said  funds  or  either  of  them,  such  sum  or  sums  of 
money,  for  such  time  and  upon  such  conditions  as  may  be  agreed 
upon  between  said  commissioners  and  the  town,  village,  city, 
county,  or  board  of  education  applying  for  a  loan,  subject,  however, 
to  the  limitations,  restrictions,  and  conditions  hereinafter  set  forth. 

2.  The  preference  in  investing  the  trust  funds  shall  be  given 
to  the  loans  provided  for  in  subdivisions  (2),  (3)  and  (3a)  of  sub- 
section 1  in  the  order  named. 


INDEX 


INDEX 


Accountant,  certified  public 

Audit  by,  53 

Certificate  of,  127 
Accounting 

For  auxiliary  departments,  89 

For  bookstore,  90 

For  buildings  in  course  of  con- 
struction, 64 

For  current  operations,  66 

For  dining-halls,  90 

For  dormitories,  90 

For  fimds  for  special  purposes, 
61 

For  physical  plant,  55,  63 

For  sundry  receipts  and  dis- 
bursements, 91 

For  trust  funds,  58 

System   for   endowed   institu- 
tions, 6,  58 
Accounts 

Cash  book,  96 

Classification  of,  91 

Closing,  92 

Journal,  96 

Ledger,  59,  62,  92,  97 

Loose-leaf  and  bound  book,  101 

Student,  99 

Supervision  and  keeping  of,  by 
business  manager,  181 

Administrative  officers,  reports  of, 

41 
Alumni  organizations,  17 
Amendments  to  By-Laws,  193 
Amherst  College,  5 

Amortization 
Definition  of,  73 
Of  premium,  71 

Annual  Report  of  Treasurer,  119 

VC  Annuities,  Schedule  VI,  156 


Annuity  ^^ 

Fimds  subject  to,  50     '^ 
Investments,  rep>ort  of,  125    ^ 
Investments,  Schedule  II,  148    1^ 

Association  of  Colleges  and  Sec- 
ondary Schools  of  the  South- 
em  States,  15 
Audit 

Annual,  53 
Committee  on,  190 

Auditor,  Certificate  of,  127 

Auxiliary  departments 
Accounting  for,  89 
Disbiu-sements  for,  21 
Report  of  operation,  124 

B 

Balance  sheet 
Arrangement  of,  107 
Table  I,  128 

Bond,  surety 

Business  manager,  183 
Officers  and  employees,  183 
Treasurer,  179 

Bookkeeping,  double  entry  system 

of,  96 
Books  of  account  needed,  96 

Bookstore 
Accounting  for,  90 
Disbursements  for,  22 
Receipts  from,  10 
Table  VII,  138 

Boimd  book  records,  101 

Brown  University,  5 

Budget 
Accounts,  83 
Approval  of,  83 
Classification  of  expenses,  75 
Classification  of  income,  68 


207 


208 


INDEX 


Classification  of  recommenda- 
tions, 78 

Closing  of,  88 

Committee  on,  83,  188 

Comparison  of  estimated  in- 
come and  expenditures,  81 

Comparison  with  income  re- 
ceived previously,  75 

Controlj  67,  83,  88 

Expenditures,  20 

Methods  of  estimating  income, 
70 

Principles  of  making,  88 

Revision,  85 

Surplus,  87 

System,  48,  67 

Budget — ^appropriations 
Classification  of  j  75 
For  administration  and  general 

expense,  79 
For  care  and  maintenance  of 

buildings,  79 
For  instruction,  78 
For  special  purposes,  80 
Summary  (tabiilated),  81 

Budget — estimates  of  income 
From  endowment  investments, 

70 
From  gifts,  73 
From     miscellaneous     sources, 

74,80 
From  student  fees,  70 
Provision  for  contingent  fund, 

83 
Summary  (tabulated),  80 

Buildings 
Accounting  for,   in   course  of 

construction,  64 
Additions  to,  125 

Buildings  and  equipment 
Funds,  Schedule  VII,  157 
Funds,  Temporary  Investment 
of,  Schedule  IV,  151 

Buildings    and    Grounds,    Com- 
mittee on,  189 

Buildings,    grounds,    and   equip- 
ment 
Schedule  III,  149 


Bulletin,  Commissioner  of  Educa- 
tion, 1 
Bureau  of  Education,  11,  14 
Business  manager 

Duties  of,  181 

Endowed  College,  174 

Surety  bond  of,  183 
By-Laws,  173 

Endowed  College,  176 

Regents  of  XJmversity  of  Wis- 
consin (Appendix),  197 


Capital  expenditures,  18,  19 

Card  system,  99 

Carleton  College,  5 

Cash  book,  receipt,  96 

Cash,  record  of,  63 

Certificate  of  Public  Accountant, 

127 
Charter,  171 
College  of  Liberal  Arts 
Analysis   of   Income   and   Ex- 
pense, Table  IV,  135 
Expense,  Table  III,  133 
Income,  Table  III,  131 
Physical  Plant,  Operation  and 
Maintenance  of.  Schedule  XI, 
163 
Summary,  Table  III,  134 

Commissioner  of  Education 

Bulletin  of,  1 

PubUcations  of,  3 
Committee 

Executive,  185 

On  Audit,  190 

On  Budget,  83,  188 

On  Buildings  and  Grounds,  189 

On  Finance  and  Investment,  186 

On  Instruction,  189 

Committees  of  Board 
Appointment  of,  184 
Minutes  of,  185 
Personnel  of,  184 
Quorum,  185 
Standing,  184 
Time  and  place  of  meeting,  185 


INDEX 


209 


Contingent  fund,  reserve  for,  83 

Cornell  University,  4 

Current  operations 
Accounting  for,  66 
Bookstore,  125 
College  of  Liberal  Arts,  123 
Dining-halls,  124 
Dormitories,  124 
In  balance  sheet,  110 
Receipts   and   expenditures   of 

(tabulated),  120 
Result  of,  119 

Cy  Pres,  doctrine  of  (note),  28 

D 

Deficits,  47 
Dining-halls 

Accounting  for,  90 

Current  operations  of,  124 

Disbursements  for,  22 

Purchasing  for,  95 

Receipts  from,  10 

Table  VI,  137 

Disbursements 

Classification  of  expenses  of 
operation,  19 

For  auxiliary  departments,  21 

For  bookstores,  22 

For  ciurent  operations,  18 

For  dining-halls,  22 

For  dormitories,  22 

For  land,  buildings,  and  equip- 
ment, 18 

Incurred  in  raising  funds,  22 

Dormitories 
Accounting  for,  90 
Di8biu*8ements  for,  22 
Investment  of   endowment  in, 

44 
Receipts  from,  10 
Result  of  operation  of,  124 
Table  V,  136 


E 


Election 
Of  officers,  177 
Special,  178 


Endowed  College 
By-Laws  of,  176 
Organization  of,  173 
St^  required  for,  175 

Endowment 

Accounting  for,  60 

Budget  estimate  of  income 
from,  70 

Definition,  24 

For  chairs,  28 

Funds,  Schedule  V,  152 

Gifts  to,  15,  29 

Hjrpothecation  of,  46,  186 

Improper  use  of  term,  24 

Income  on,  10,  14 

Increase  in,  3 

Insidious  use  of,  for  current 
purposes,  49 

Investment  of,  32,  62 

Investment  of.  Schedule  I,  144 

Loans  of,  prohibited,  42,  187 

Preservation  of  principal,  32 

Record  of  gifts  for,  60 

Restricted,  27 

Source  of,  15,  26 

Soiu"ce  of  income,  1 

Subject  to  annuity,  50 

Treatment  of  pledges  and  sub- 
subscriptions  to,  51 

Trustees  responsible  for  invest- 
ment of,  39,  51 

Undesirable  investments  of,  43 

Unrestricted,  27 

Value  placed  on  gifts  to,  29 

Equipment 

Building,  19 

Scientific,  19 
Executive  Committee,  185 


Faculty,    by-law    pertaining    to, 

192 
Fees 
Advance  payment  of,  13 
Breakage,  damage  and  loss,  10, 

12 
Budget    estimate    of    income 

from,  70 
Graduation,  12 


210 


INDEX 


Incidental,  10 

Laboratory  materials  and  sup- 
plies, 10,  12 

Library,  10,  12 

Matriciilation,  12 

Proportion  of,  to  cost  of  educa- 
tion, 10 

Source  of  income,  1 

Tuition,  10 
Finance  and  Investment,   Com- 
mittee on,  186 
Fines,  13 
Floating  debt,  47 
Fimds 

Accounting  for  special,  61 

General,   for  Designated   Piu-- 
poses,  Schedule  IX,  159 

Invested    separately    or    as    a 
whole,  37 

Special,    for    Designated    Pur- 
poses, Schedule  VIII,  158 

Subject  to  annuity,  50 

G 

General  Education  Board,  4 

Gifts 
Budget    estimates    of    income 

from,  73 
Classification  of,  15 
For  endowment,  60 
From  John  D.  Rockefeller,  4 
Increase,  in  for  endowment,  3 
Kinds  of,  16 

Methods  of  obtaining,  15 
Paid  in,  Table  X,  141 
Receipts  from,  10,  15 
Report  of,  112,  126 
Source  of  income,  1,  15 
Value  placed  on,  29 

Graphs 

Showing  distribution  of  income, 
55 

Statistical,  104 
Grinnell  College,  5 

H 

Harvard  College,  2,  3 
Harvard  University,  4,  5 


Heat,  Light,  Power,  and  Water, 

Table  IX,  140 
Hypothecation     of     endowment, 

46,  186 

I 

Income 

Budget  classification  of,  68 

Budget  estimates  of,  70 

Comparison  of,  75 

From  endowment,  14 

From  gifts,  15 

From  student  fees,  10 

Source  of,  1 
Indiana  State  Teachers'  Training 

Board,  14 
Instruction,  disbursements  for,  21 
Investments 

Accounting  for,  35,  58 

Committee  on,  186 

Diversification  of,  34 

Fimds  for  special  purposes,  62 

Hypothecation  of  endowment, 
46 

Principles  of  making,  32 
Procediu-e  in  making,  37 

Suitable  kinds  of,  32 

Trustees  responsible  for  mak- 
ing, 39,  51 

Undesirable,  43 


Johns  Hopkins  Hospital,  34 
Johns  Hopkins  University,  34 


Land,  buildings,  and  equipment, 
disbursements  for,  18,  19 

Ledger  accoimts,  balancing  and 
closing,  92 

Loans  prohibited,  42,  187 

Loose-leaf  records,  101 


M 

Meetings 
Annual,  176 
Call  for  special,  176 
Notice  of,  176 


INDEX 


211 


Order  of  business,  177 
Place  of,  176 
Quorum,  177 
Regular,  176 
Rules  of  order,  177 
Special,  176 

N 

North    Central    Association    of 
Schools  and  Colleges,  14 

O 

OflBcers 

Election  of,  177 

Surety  bonds  of,  183 
Origin  of  colleges  and  universi- 
ties, 2 


Pay-roll  register,  99 
Physical  plant 

Accounting  for,  63 

Definition,  54 

Depreciation  of,  56 

Insurable  value,  56 

Inventory,  56 

Operation     and     maintenance, 
disbursements  for,  20,  54 

Operation    and    Maintenance, 
Schedule  XI,  163 
Pledges,  treatment  of  endowment, 

51 
Premium,  amortization  of,  71,  73 
President   of   board   of   trustees, 

duties  of,  178 
President  of  college 

Acting,  191 

Annual  report  of,  191 

Duties  of,  191 
Purchasing,  93 

R 
Real  estate 

Provision  for  depreciation  of,  30 

Value  placed  on  gifts  of,  30 
Receipts 

From  bookstore,  10 

From  dining-halls,  10 


From  dormitories,  10 

From  gifts,  10,  15 

From  income  on  endowment, 
10,  14 

From  miscellaneous  sources,  10 

From  students,  10 

Relative  distribution  of,  in 
private  and  pubUc  institu- 
tions, 1 

Sources  of,  10 
Records 

Financial,  96 

Statistical,  102,  114 
Reports 

Contents  of,  107 

Financial,  41,  92,  105 

For  trustees,  115 

Treasurer's  Annual,  119 
Requisitions,  83 

Reserves   Account,   Schedule  X, 
162 

S 
Salaries,  teachers',  4 
Salary  check,  99 
Schedules 

I.  Investment    of    Endow- 
ment Funds,  144 
Investment   of   Annuity 
Funds,  148 

Buildings,  Grounds,  and 
Equipment,  149 
Temporary   Investments 
of  Building  and  Equip- 
ment Funds,  151 
Endowment  Funds,  152 
Annuities,  155 
VII.  Building  and  Equipment 

Funds,  157 
VIII.  Special  Fimds  for  Desig- 
nated Purposes,  158 
IX.  General  Funds  for  Desig- 
nated Piuposes,  159 
X.  Reserves,  162 
XI.  Operation   and   Mainte- 
nance of  Physical  Plant, 
163 
Explanatory  notes  on,  167 


II. 
III. 
IV. 


V. 
VI. 


212 


INDEX 


School  of  Music 

Report  of  current  operations, 
125 

Table  VIII,  139 
Secretary,  duties  of,  180 
Securities 

Access  to,  52,  179 

Annual  audit  of,  53 

Custody  of,  52 
Smith  College,  5 

Special  Funds  for  Designated  Pur- 
poses, Schedule  VIII,  158 
Statements,  explanatory,  113 
Statistical  records,  102 
Statistical  reports,  114,  116 
Statistics 

Explanatory,  113 

Graphic  representation  of,  104 
Strictly     educational     operation, 

meaning  of  (note),  11 
Student  fees,  10 

Advance  pajmaent  of,  13 

Budget    estimate     of    income 
from,  70 
Students 

Receipts  from,  10 

Share  of  cost  of  education,  10 
Subscriptions,    treatment   of   en- 
dowment, 51 
Surplus    and     Deficit    Account, 
Table  II,  130 


Tables 

I.  Balance  Sheet,  128 
II.  Surplus  and  Deficit,  130 

III.  College  of  Liberal  Arts — 
Income,  131 

College  of  Liberal  Arts — 
Expense,  133 
CoUege  of  Liberal  Arts — 
Summary,  134 

IV.  College  of  Liberal  Arts — 
Analysis  of  Income  and 
Expense,  135 

V.  Dormitories,  136 
VI.  Dining-Halls,  137 


VII.  CoUege  Bookstore,  138 
VIII.  School  of  Music,  139 
IX.  Heat,  Light,  Power,  and 

Water,  140 
X.  Gifts  Paid  in,  141 
Explanatory  notes  on,  164 
Taxes,  source  of  income,  1 
Tax-supported  institutions,  refer- 
ence to,  6 
Treasurer 

Annual  Report  of,  119 
Duties  of,  178 
Endowed  College,  174 
Surety  bond  of,  179 
Trust  funds,  file  of,  63 
Trust  Laws,  Wisconsin   (Appen- 
dix), 194 
Trustees 

Powers  of,  172 
Reports  of,  41,  115 
Responsibility  of,  39,  51 

U 

University  of  California,  1 
Cambridge,  3 
Chicago,  5 
lUinois,  6 
Michigan,  6 
Minnesota,  6 
Oxford,  3 
Princeton,  4 
Virginia,  1 
Wisconsin,  6 

University  of  Wisconsin  By-Laws 
of  Regents  (Appendix),  197 


Vice-president,  duties  of,  178 
Voucher  check,  98 
Voucher  register,  98 

W 

Wisconsin   Trust  Laws    (Appen- 
dix), 194 


Yale  University,  5,  17 


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